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50th Anniversary Anthology of the Works of David Ricardo

The 50th Anniversary of Liberty Fund (1960-2010)

Liberty Fund was founded in 1960 thus making 2010 its 50th Anniversary Year. As part of the celebrations organized for this year we plan to create a number of anthologies drawn from the books which Liberty Fund has published over the decades. The idea is to introduce readers to some of the outstanding material which Liberty Fund has produced over this period in the hope that it might encourage people to read the original books for themselves.

In particular, we will showcase the outstanding definitive scholarly editions of the following economists and political theorists:

• The Glasgow Edition of the Works and Correspondence of Adam Smith (7 titles). The Glasgow Edition was originally published by Oxford University Press in 1976 to coincide with the 200th anniversary of the publication of Smith’s best known work The Wealth of Nations in 1776. It was republished by Liberty Fund between 1981-1987.
• The Collected Works of John Stuart Mill, ed. J.M. Robson (Toronto: University of Toronto Press, London: Routledge and Kegan Paul, 1963-1991), 33 vols. All 33 vols. are available online at the Online Library of Liberty. Volumes I, II, III, IV, V, VII, VIII, and X have been republished in book form by Liberty Fund in 2006.
• The Works and Correspondence of David Ricardo, ed. Piero Sraffa with the Collaboration of M.H. Dobb (Indianapolis: Liberty Fund, 2005), 11 vols. This eleven-volume set was prepared under the auspices of the Royal Economic Society by Piero Sraffa and printed by Cambridge University Press in 1951–1973.
• Liberty Fund Library of the Works of Ludwig von Mises, ed. Bettina Bien Greaves. 9 vols.
• The Natural Law and Enlightenment Classics, general editor Knud Haakonssen. 40 vols.

Additional anthologies of Liberty Fund books are planned in the following subject areas and topics: The American Revolution and Constitution, History of Political Thought, Economics, History, Law, Political Thought.

A complete list of books published by Liberty Fund can be found at its online catalog from which they can be purchased. Many of these are also available online at the OLL here.

David Ricardo (1772-1823)

David Ricardo (1772-1823) was born in London of parents recently emigrated from Amsterdam, where he was educated as a youth in yeshivas. He returned to London and made a large fortune as a stockbroker, and eventually was elected to Parliament; but he also enjoyed reading about economics. He was ultimately inspired by Smith’s The Nature and Causes of the Wealth of Nations, and, using his background in the stock market and his natural incisive ability, actively disagreed with the mercantilist views on gold accumulation and the pricing of gold. He eventually took on some of Smith’s inconsistencies, and in the process developed the role of comparative advantage in international trade. He is one of the early describers of what has become known as “Ricardian equivalence” - the condition that real interest rates are influenced by government spending, but not necessarily by the way the government finances that spending (via borrowing or taxation). His contributions to the economics of rent, monetary theory, and the theory of value influenced economists of his day and since. [The image comes from “The Warren J. Samuels Portrait Collection at Duke University.”]

The selections are taken from Liberty Fund’s edition of the The Works and Correspondence of David Ricardo, ed. Piero Sraffa, 11 vols.

For additional reading see:

• David Ricardo bio page
• School of Thought: The Classical School of Economics
• Timeline on the Life and Work of David Ricardo
• at our sister website Econlib: the Concise Encyclopedia of Economics entry on Ricardo

• Back to Top

  1: The Price of Gold [1809/2004]

  David Ricardo, The Works and Correspondence of David Ricardo, ed. Piero Sraffa with the Collaboration of M.H. Dobb (Indianapolis: Liberty Fund, 2005). Vol. 3 Pamphlets and Papers 1809-1811. Chapter: THE PRICE OF GOLD THREE CONTRIBUTIONS TO THE MORNING CHRONICLE1809

  Accessed from oll.libertyfund.org/title/204/38441 on 2010-02-03

  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.

  ---

  THE PRICE OF GOLD THREE CONTRIBUTIONS TO THE MORNING CHRONICLE
  1809

  THE PRICE OF GOLD 1

  The present high market price above the mint price of gold, appears to have engrossed a great portion of the attention of the public; but they do not seem to be sufficiently impressed with the importance of the subject, nor of the disastrous consequences which may attend the further depreciation of paper. I am anxious, whilst there is yet time, that we should retrace our steps and restore the currency to that healthful state which so long existed in this country, and the departure from which is pregnant with present evil and future ruin.

  The mint price of gold is 3l. 17s. 10½d. and the market price has been gradually increasing, and was within these two or three weeks as high as 4l. 13s. per ounce, not much less than 20 per cent. advance.

  It is remarkable that between the years 1777 and 1797 the average price of gold was not higher than 3l. 17s. 7d. During that period, our currency was one of acknowledged purity. It is only since 1797, since the year that the Bank has been restricted from paying its notes in specie, that gold has risen to 4l., 4l. 10s., and latterly to 4l. 13s. per ounce. Whilst the Bank pays its notes in specie, there can never be any great difference between the mint and market-prices of gold. It is well known that, detection being difficult, notwithstanding the most severe, and, perhaps, absurd laws, when it becomes greatly the interest of individuals from a high market price of gold, the coin will be melted and sold as bullion, or exported, as it best suits the views of those who engage in such traffic. If, then, whilst the Bank paid in specie gold rose to 4l. or more per ounce, these dealers would exchange their notes at the Bank, obtaining an ounce of gold for every 3l. 17s. 10½d. in bank notes. This gold would be melted and sold, or exported for 4l. or more in bank-notes per ounce; and as this operation might be repeated daily, or indeed hourly, it would be continued till the Bank had withdrawn the superfluous quantity of their notes from circulation, and had thereby brought the market and mint prices of gold to a level. This is the only check which can exist to an over issue from the Bank, and was so well known that the Bank never ventured on it with impunity.

  No efforts of the Bank could keep more than a certain quantity of notes in circulation, and if that quantity was exceeded, its effects on the price of gold always brought the excess back to the Bank for specie. Under such regulations the market price of gold could never rise much above the mint price, for who would give 4l. or more, in bank-notes, for an ounce of gold, when he might obtain the same at the Bank for 3l. 17s. 10½d. It would be the same thing as offering an ounce of gold and 2s. 10½d. for an ounce of gold.—When we talk of a high price of gold, it can have no meaning, if estimated in gold, or in notes which are immediately exchangeable for gold. It may be high, estimated in silver, or in goods of all kinds, and it is only when gold is high compared with goods, or in other words that goods are cheap, that any temptation is offered for its importation. When it is said that we may obtain 1l. 5s. for a guinea by sending it to Hamburg, what is meant but that we may get for it a bill on London for 1l. 5s. in bank-notes? Could this be the case if the bank paid in specie? Would any one be so blind to his interest as to offer me one guinea in specie and four shillings, for a guinea, when he might obtain the same at Hamburgh at par, paying only the expences of freight, &c.? It is only because he cannot get a guinea at the Bank for notes, that he consents to pay it with notes at the best price he can, or in other words he sells 1l. 5s. of his bank-notes for a guinea in specie.

  When the Act restricting the Bank from paying in specie took place, all checks to the over issue of notes were removed, excepting that which the Bank voluntarily placed on itself, knowing that if they were not guided by moderation, the effects which would follow would be so notoriously imputable to their monopoly, that the Legislature would be obliged to repeal the Restriction Act.

  Whilst the Bank is willing to lend, borrowers will always exist, so that there can be no limit to their over-issues, but that which I have just mentioned, and gold might rise to 8l. or 10l. or any other sum per ounce.—The same effect would be produced in the price of provisions and on all other commodities, and there would be no other remedy for the depreciation of paper, than the Bank withdrawing the superabundant quantity from circulation, by insisting on the merchants paying their bills as they became due, and refusing to renew their loans until the scarcity of circulating medium should so raise its value that it would be at par with gold. It could rise but little above that price, for from that moment importation of gold would commence, and if the Bank were gradually to withdraw all their notes from circulation, the place of those notes would as gradually be supplied by imported gold, which the high price—I mean the high price in goods, would infallibly draw to this country.

  If my view of this subject has been correct, we are enabled to ascertain the amount of depreciation at which Bank notes at any time may be, and when gold was at 4l. 13s. per ounce, they appear to have arrived at the enormous discount of 20 per Cent. I may be asked if Bank notes are at so great a discount, how comes it that no shopkeeper will sell more goods for twenty guineas than for 21l. in Bank notes. For this I can only account by supposing that the trade of purchasing guineas at a premium, or in other words selling Bank notes at a discount, is one which would expose the man who openly undertook it to so much obloquy and suspicion, that notwithstanding the profit, no one is hardy enough to encounter the risk, particularly as the law is very severe against melting the coin or exporting it. But that it is practised secretly there can be no doubt, as the profit attending it is enormous, and the number of guineas in circulation, considering that nearly 60 millions have been coined in the present reign, is diminished to a very small amount.

  It is sufficient for my argument if I prove that it is a trade which can advantageously be carried on—that if tradesmen could openly and readily sell guineas for twenty-three shillings each, or more in Bank notes, they could afford to sell their goods cheaper for gold than for Bank notes;—and it is sufficiently evident that buying guineas at twenty-three shillings is between 9 and 10 per cent. premium, and selling gold at 4l. 13s. or nearly 20 per cent. premium, is a trade much more advantageous than many carried on in the city of London.

  If further proofs of the depreciation of Bank notes were wanting, and that it was caused by an over-issue, it would be found in the present rate of exchange with foreign countries. To make this apparent may require us to consider what is meant by the rate of exchange, and the rules and limits to which it is subject.

  If I purchase from a resident in Holland goods of that country, the bargain is made in the money there current. I have consequently contracted to pay him a certain number of ounces of silver of a given purity. As the comparative value of silver and gold is nearly equal all over the world my debt may be either estimated in silver or in the number of ounces of gold for which it would exchange. And if a merchant in Holland has purchased from a resident in London goods which are valued in English money, he has contracted to pay a certain number of ounces of gold of known purity or fineness.

  To save the expence of the freight and insurance attending the exporting and importing of a quantity of gold to liquidate these debts, it suits the convenience of both the parties, after agreeing how much money of the one country is equivalent, considering its weight, purity, &c. to that of the other, and which is called the par of exchange, to make a transfer by means of a bill, which is done by my paying to the English merchant the sum which I am indebted to my Correspondent in Holland, the English merchant ordering his Correspondent in Holland to pay to mine the same amount, estimated at the rate of exchange agreed on, in Dutch money. The advantage to both parties is saving freight and insurance. Now if two or more parties had been indebted to merchants in Holland, there would have been a competition between them for the purchase of this bill, and the seller would no longer have been satisfied with saving the freight and insurance on the importation of his gold, but would have exported, and would have obtained a premium for his bill, which it would have been the interest of either of the other parties to have given him, provided such premium did not exceed the expence of the transport of the metals. It is necessarily kept within that limit, for either would say, “the number of ounces of gold which I owe in Holland are ready to pay my debt. I am willing to give them to you to pay it for me, and to add to it the expences which would attend the sending it; but nothing can induce me to give more, as if you do not accept my offer, I shall suffer no further disadvantage by sending the gold!”— This is therefore the natural limit to the fall of the exchange, it can never fall more below par than these expences; nor can it ever rise more above par than the same amount.

  But since the restriction on the Bank paying in specie, the fall of the exchange has kept pace with the rise in gold, and is now considerably lower than the limits which I have pointed out, and which may be accounted for in the following manner:—

  A merchant can no longer say, that he is possessed of a sufficient number of ounces of gold to send abroad to pay his debt; he may say, indeed, that he has a sufficient number of bank notes, which if he could sell at par, or exchange at the Bank for what they profess to be, viz. an ounce of gold for every 3l. 17s. 10½d. he would have sufficient gold to pay his debt; but as things are, he must either sell his bank notes and be contented to obtain an ounce of gold, or 3l. 17s. 10½d. for every 4l. 13s. of notes, or agree to make an allowance at that rate to the person with whom he negociates his bill. Thus then it appears, that the exchange may not only fall to the limits which I have before mentioned, but also in an inverse proportion to the rise of gold, or rather the discount of bank notes. But these are the limits within which it is even now confined. It cannot on the one hand rise more above par than the expence of freight, &c. on the importation of gold, nor on the other fall more than the expences of freight, &c. on its exportation, added to the discount on bank notes.

  If bills of exchange were payable in gold and not in bank notes, the restriction on the Bank from paying in specie, could not in any way affect the exchange beyond the limits which I before specified.

  What becomes then of the argument which has so often been urged in Parliament, that whilst the rate of exchange continued against us, it would not be safe for the Bank to pay in specie, when it is evident that their not paying in specie is the cause of the present low exchange.

  Let the Bank be enjoined by Parliament gradually to withdraw to the amount of two or three millions of their notes from circulation, without obliging them, in the first instance, to pay in specie, and we should very soon find that the market price of gold would fall to its mint price of 3l. 17s. 10½d. that every commodity would experience a similar reduction; and that the exchange with foreign countries would be confined within the limits above mentioned.

  It would then be evident that all the evils in our currency were owing to the over-issues of the Bank, to the dangerous power with which it was entrusted of diminishing at its will, the value of every monied man’s property, and by enhancing the price of provisions, and every necessary of life, injuring the public annuitant, and all those persons whose incomes were fixed, and who were consequently not enabled to shift any part of the burden from their own shoulders.

  [FIRST REPLY TO ‘A FRIEND TO BANK-NOTES’]
  To the editor of the morning chronicle.1

  Sir,

  In the observations which I made on the high price of gold in the Morning Chronicle of the 29th ultimo, I expressed my apprehensions of the serious consequences which might attend the increasing depreciation of paper. By lessening the value of the property of so many persons, and that in any degree they pleased, it appeared to me that the Bank might involve many thousands in ruin. I wished, therefore, to call the attention of the public to the very dangerous power with which that body was entrusted; but I did not apprehend, any more than your Correspondent, under the signature of “A Friend to Bank Notes,”1 that the issues of the Bank would involve us in the dangers of a national bankruptcy.

  Allowing to this writer, that the demand for gold has increased, whilst the usual supplies have been withheld, I am not convinced by any arguments which he has advanced, that the market price of gold could have been thereby affected, unless the medium in which the price was estimated was depreciated. That the scarcity of gold should increase its value cannot be doubted; that it would in consequence, when exchanged for other commodities, command an increased quantity of them, is as certain; but no scarcity, however great, can raise the market price much above the mint price, unless it be measured by a depreciated currency.

  A pound of gold is coined into forty-four guineas and a half, or 46l. 14s. 6d. This is, therefore, the mint price, and cannot be called, as your Correspondent calls it, an arbitrary value. It is the simple declaration of a fact, that forty-four guineas and a half are of the same weight as a pound of gold, and one-twelfth of that quantity or 3l. 17s. 10½d. of an ounce.

  Experience has proved to us, and particularly that of the twenty years preceding 1797, during the vicissitudes of war and peace, of favorable and unfavorable trade, that 46l. 14s. 6d. or a mint pound, would purchase sometimes a little more, and sometimes a little less than a pound of uncoined gold; and whilst an equal amount of bank notes would do the same, they would not be said to be depreciated. This they always did previous to the restriction on the Bank paying in specie, and for some time after it. Will this writer explain to us why any demand, however great, should induce any one to give, as has been lately done, 55l. 16s. in bank notes, for a pound of gold, if they are of equal value with 55l. 16s. in coin? Does he reflect that the gold actually contained in 55l. 16s. weighs one pound and a fifth of a pound? Is it seriously believed that he would give this for a pound? If it is agreed that he would not, then is the fact of the depreciation of bank notes fully established. If for the purchase of gold a greater quantity of corn, hardware, or any other commodity, were given than usual, it might justly be said that the scarcity of gold had increased in value. But what is the fact? If I go to market with corn or hardware, I can purchase 55l. 16s. in bank notes with precisely the same quantity that I am obliged to give to procure a pound of gold, or 46l. 14s. 6d.

  I do not dispute with this writer but that it may be advantageous to a foreigner to send his goods to London, and after selling them for 25s. give that sum for the purchase of a guinea. He may possibly be doing it now with profit to himself. But he would not give twenty-five shillings for a guinea, if he did not pay for it in a depreciated medium. Again, I ask, does he think it possible that he would give a guinea and four shillings for a guinea, or bank notes to that amount, if they were exchangeable for that sum?

  From the observations of this writer we should be led to suppose, that gold being at a higher price on the Continent than it is here, we might obtain there for it 4l. 15s. or more per ounce; but we should be mistaken in forming such a conclusion. It is paid for there in a medium not depreciated, and is probably somewhere about 4l. per ounce. But a purchaser here at 4l. 10s. can afford to sell it there at that price; because by means of the low exchange, (caused by the depreciation), he can reimburse himself for the depreciation of 15 or 20 per cent. to which our currency has arrived.

  It is contended, too, that all the effects on the Exchange, “which I attribute to the issue of bank notes, would equally be felt if there were not a single bank note in circulation.”

  If our circulation were wholly carried on by specie, I believe it would be difficult for this writer to convince us, that the exchange might be 20 per cent. against us. What could induce any person owing 100l. in Hamburgh, to buy a bill here for that sum, giving 120l. for it, when the charges attending the exportation of the 100l. to pay his debt could not exceed 4l. or 5l.?

  The severity of the law against the exportation of gold coin, prevents any one from openly selling bank-notes at a discount, not from any delicacy, as your correspondent supposes me to say, against doing an immoral or an unlawful act, but from the fear that as it is known that no one can purchase guineas but with a view to exportation, he would become an object of suspicion,—he would be watched and unable to effect his purpose. Repeal the law, and what can prevent an ounce of standard gold in guineas from selling at as good a price as an ounce of Portugal coin, when it is known to be rather superior to it in purity? And if an ounce of standard gold, in guineas, would sell in the market (as Portugal coin has lately done) at 4l. 13s. per oz. how long would a shopkeeper sell his goods at the same price either for gold or bank-notes indifferently? The penalties of the law, therefore, have degraded the few guineas in circulation to the value of the bank-notes, but send them abroad and they will purchase exactly what an equal quantity of Portugal coin will.

  This is the temptation to their exportation, and operates the same as a demand from abroad. Our currency is already superfluous, and it is worse than useless to retain the guineas here. But diminish the currency by calling in the excess of bank-notes:—Make a partial void, as your correspondent justly observes was done in France and other countries, from the annihilation of their paper-credit, and what can prevent the effectual demand which would thereby be immediately created, from producing an importation of gold, and consequently a favorable exchange?

  If our circulating medium has been augmented a fifth, till that fifth be withdrawn the prices of gold and commodities will remain as they are. Increase the quantity of notes, they will rise still higher; but withdraw the fifth, as I earnestly recommend, and gold and every other commodity will find its just level, and whilst the Bank continues to possess the confidence of the public, the representative of an ounce of gold, or 3l. 17s. 10½d. in bank-notes will always purchase an ounce of gold.

  The hint thrown out of altering the mint price to the market price of gold, or, in other words, declaring that 3l. 17s. 10½d. in coin, shall pass for 4l. 13s. besides its shocking injustice would only aggravate the evil of which I complain. This violent remedy would raise the market price of gold 20 per cent. above the new mint price, and would further lower the value of bank-notes in the same proportion.1

  It has been shewn incontrovertibly by that able Writer, Dr. Adam Smith, that the rate of interest for money is regulated by the rate of profits on that part of capital only which does not consist of circulating medium, and that those profits are not regulated but are wholly independent of the greater or lesser quantity of money which may be employed for the purposes of circulation; that the increase of circulating medium will increase the prices of all commodities, but will not lower the rate of interest.1

  We must not, therefore, depend upon the criterion, namely, the rate of interest so strongly recommended by your correspondent, by which to judge of the issues of the Bank; because, if Dr. Smith’s reasoning be correct, if our circulating medium were ten times as great as it is, the rate of interest would not be permanently affected.

  I think, Sir, I have succeeded in proving that my alarms are not altogether groundless, and that there does exist a great depreciation in our currency, affecting the interests of the public annuitant, and of those whose property consists in money, without any corresponding advantages. The evils attending a variable medium, as it affects all contracts, are too obvious to require to be noticed. The permanency of the value of the precious metals first recommended them as the general medium of exchange. That advantage is now lost to us, and we cannot consider our currency on a solid foundation till it be restored to the value of that of other countries.

  By withdrawing a certain quantity of Bank of England notes from circulation it is supposed, by Mr. Cobbett, that their place would be immediately supplied by country banknotes.2 No such effect would, in my opinion, take place; on the contrary, I think such a measure would oblige the country-banks to call in at least as many, if not considerably more, of their notes.

  A Bank of England note and a country bank note are now of equal value, and their quantities are proportioned to the business which they have to perform. By withdrawing Bank of England notes from circulation you increase their value and lower the prices of commodities in those places where they are current. A Bank of England note will then be more valuable than a country bank-note, because it will be wanted to purchase in the cheaper market; and as the country bank is obliged to give Bank of England notes in exchange for their own, they would be called upon for them till the quantity of country paper should be reduced to the same proportion which it before bore to the London paper, producing a corresponding fall of the prices of all commodities for which it was exchangeable.

  A writer in The Pilot newspaper has been pleased to suppose, that a gentleman who has written in your paper under the signature of “Mercator,” has done so “in aid or in imitation of, or in conjunction and conspiracy with me.” The fact can of itself be of little importance. If his arguments or mine are weak, let him shew them to be so; but “No Trafficker” is mistaken.—The sentiments of “Mercator” are only known to me as they are to him, through the medium of The Morning Chronicle.1

  I am Sir, &c. R.

  [SECOND REPLY TO ‘A FRIEND TO BANK-NOTES’]
  To the editor of the morning chronicle.1

  Sir,

  Had your Correspondent, “A Friend to Bank-notes,” when he first did me the honour to notice my observations on the high price of Gold, contended, as he now does,2 that Bank-notes were the representatives of Silver, but not of Gold Coin, we should sooner have discovered from whence the difference of our opinions on the subject in dispute between us arose. I should then, Sir, have spared him the trouble of giving so many proofs of that which is indisputable, namely—that if Silver be the sole measure of value, Gold being at 4l.13s. per oz. is not, of itself, evidence of Bank notes being at a discount. Indeed, I thought that in the following observations I had admitted that position—“When we talk of a high price of Gold, it can have no meaning if estimated in Gold, or in Notes which are immediately exchangeable for Gold. It might be high estimated in Silver, or in goods of all kinds.”3 It was evident from the tenor of that and the subsequent paper, that I considered Gold Coin as the standard of commerce, and by it estimated the depreciation of Bank-notes. I had no reason to suppose that it was otherwise considered by your Correspondent. In one place he called Bank-notes a “substitute for Gold”; in another he observes, that “Had not this restriction been imposed, the great and growing demand for Gold upon the Continent would have drawn every Guinea out of the Country, and would have left us without resource in any emergency which might arise, by which its credit would be shaken.”1 The restriction could only have enabled the Directors of the Bank, if they had been so disposed, to prevent the Guineas locked up in the Bank from being exported. Those in circulation have been as liable to be sent out by the Country since, as before that measure. But, if Silver only be the standard of currency, as is now asserted, the Bank might have paid their Notes in our present debased Silver Coin; in Shillings, for example, debased 24 per cent. below their standard weight and value, the Guinea, therefore, would not have needed that protection. The Silver would not have been demanded, because it could not have been either melted or exported, but at a loss of 24 per cent. If Silver be the standard of currency, Bank-notes were, in 1797, at a premium of 24 per cent. and are now at a premium of 14 per cent.

  But if, as I shall attempt to prove, Gold be the standard of value, and consequently, Bank Notes the representatives of the Gold-coin, I do expect that this writer will agree with me that Bank Notes are at a discount, and that the excess of the market above the mint price of Gold measures the depreciation.

  The price of standard Silver bullion was on Tuesday last 5s. 9½d. per oz. On the same day, the price of standard Gold bullion was 4l. 10s. per oz. An ounce of Gold was therefore equal to about 15½ oz. and not 18 oz. of Silver.

  If, then, we estimate the value of Bank Notes by the price of Gold bullion, they will be found to be 15½ per cent. discount. If by the price of Silver bullion 12 per cent. discount. But your Correspondent would no doubt observe, that this conclusion from the price of Silver bullion would be correct, if our Silver currency were not degraded by wearing and clipping, but as it was known to be depreciated by being deficient in standard weight, the high price of Gold bullion might in a great measure, and that of Silver bullion wholly, be caused by that deficiency. Bank Notes are, according to this argument, the representatives, not of our standard Silver currency, but of our debased Silver Coins.

  It is observed by Lord Liverpool, in his letter to the King on the state of the coins,1 that the law now is, and has been since the year 1774, “That no tender in payment of money made in the Silver Coin of this realm, of any sum exceeding the sum of 25l. at any time, shall be reputed in law or allowed to be legal tender, within Great Britain or Ireland, for more than according to its value by weight, after the rate of 5s. 2d. for each ounce of silver.”

  Bank-notes are not then the representatives of the debased silver coins. A holder of a Bank-note of 1000l. might refuse to take more than 25l. in the present debased Silver currency. If the remaining 975l. were paid him in shillings, he would receive them by weight, at their Mint value of 5s. 2d. per oz. which, with the 25l. of debased Silver, when sold at the present price of 5s. 9½d. per oz. would yield 1110l. in Bank-notes. Here then it is proved, on this writer’s own principles, that if Silver be the standard currency, Bank-notes are at a discount of 11 per cent.

  For the following reasons given by Lord Liverpool, in the work before mentioned, I consider Gold as the standard measure of value. He observes, “that the Silver Coins are no longer the principal measure of property: all commodities now take their price or value in reference to the Gold Coin,2 in like manner as they took their value in a former period in reference to the Silver Coins. On this account the present deficiency of the Silver Coins, great as it is, is not taken into consideration, in paying the price of any commodity, to the extent in which they are legal tenders. It is clear, therefore, that the Gold Coins are now become, in the practice and opinion of the people, the principal measure of property.”1

  He then states, that in the reign of William the Third, the Guinea was current at even so high a value as 30s.; that the Gold Coins rose or fell as the Silver Coins were more or less perfect. “No such increase or variation in the value of Gold Coin has taken place since the year 1717, when the rate or value of the Guinea was determined by proclamation, and the Mint indenture, to be 21s. and the other Gold Coins in proportion; though the Silver Coins now current have long been, and are still, at least as deficient as they were at the beginning of the reign of King William. The Guinea and other Gold Coins have, notwithstanding, constantly passed since 1717, at the rate or value given them by the Mint indentures.”

  “The two foregoing reasons clearly prove the opinion of the people of Great Britain on this subject, in their interior commerce and domestic concerns. I will in the next place shew what has been the opinion of foreign nations concerning it.” In the reign of King William the exchanges rose or fell according to the perfection or defect of our silver coins. Before the recoinage in 1695, the exchanges with all foreign countries were 4s. in the pound against England, and with some of them considerably more. “The same evil, however, has never existed since the year 1717, though our silver coins have, during all this interval, been very defective. But, on the other hand, our exchanges with foreign countries were very much influenced to our disadvantage, when our gold coins were defective, that is, previous to the reformation of our Gold Coins in the year 1774.” Lord Liverpool considers this as a proof that foreigners consider our Gold Coins as the principal measure of property. Another argument is drawn from the prices of gold and silver bullion. When our Gold Coin was defective previous to the re-coinage in 1774, gold bullion advanced considerably above its mint value, but immediately on its being brought to its present state of perfection, gold bullion fell to something under the mint price, and has continued so for twenty years previous to 1797. “It is evident, therefore, from these facts, that the price of gold bullion was affected by the state of our gold coins, though the price of this bullion had not since the year 1717, been so affected by the defective state or condition of our silver coins.” The price of silver bullion has, since the year 1717, been affected by the perfection or defect of our Gold Coins, but has not been so by the defective state of our Silver Coins.—“From all which it is evident, that the value of Gold or Silver Bullion has, for 40 years at least, been estimated according to the state of our Gold Coin solely, and not according to that of Silver Coin. The price of both these metals rose when our Gold Coin was defective; it fell when our Gold Coin was brought to its present state of perfection; and it may, therefore, justly be inferred, that, in the opinion of the dealers in the precious metals (who may be considered as the best judges on a subject of this nature), the gold coin has in this respect become the principal measure of property, and consequently the instrument of commerce.” In another passage, Lord Liverpool considers a pound sterling to be 20–21 of a guinea.1 The same opinion is advanced by Sir J. Stewart—“At present (says he) there are no sterling pounds in silver money; there is no silver in England in any proportion to the circulation of trade; and, therefore, the only currency by which a pound can be valued is the guinea.”1

  The Bank-Directors must have been of the same opinion, when they stated in their evidence before Parliament, that it was their usual practice to limit the amount of their notes when the market price of gold exceeded the mint price.2

  In the Report of the Committee of the House of Lords in 1797, it is observed, that “Gold is the mercantile coin of Great Britain, and silver has for many years been only a commodity, which has no fixed price, and is very rarely carried to the Mint to be coined, but varies according to the demand for it at the market.”3

  I am, Sir, your obedient Servant,

  R.

  Nov. 4

  [APPENDIX TO ‘THE PRICE OF GOLD’

  The above letter concluded the correspondence in the Morning Chronicle. The controversy was continued privately by Ricardo and Trower, and at least two papers were written by each of them, as suggested above, p. 5. Only two of these papers (one by Trower and one by Ricardo) have survived and they are printed here. Trower’s paper is included since it gives some indication of the contents of a missing paper by Ricardo.]

  [A REPLY BY TROWER]

  1. It is admitted by Mr. Ricardo1 that Silver would be the measure of value if there did not exist a law prohibiting the coining of Silver Bullion into money, but that, in consequence of this law, Gold must now be the measure of value.—

  By similar reasoning I may contend, that not Gold but Bank Notes are now the measure of value because there exists a law prohibiting the Bank from paying their Notes in Specie.

  I allow, that there is this difference between the two cases, that, whereas individuals may, if they choose, take Gold Bullion to the Mint to be coined into money, they cannot do so, with silver bullion; but this difference in the two cases can have no effect upon the question between us, that question being, whether Bank Notes represent Gold or Silver.—Now, in point of fact, they at present represent neither, the Bank being prohibited from paying their Notes in either. In speaking of Bank Notes, therefore, as the representatives of specie, reference must be made to the period when the restriction imposed upon the Bank will be removed. If at that period of time the law inhibiting the coinage of silver money shall continue in force, in that case undoubtedly Gold must be considered as the measure of value in this Country. But, at present, that Act according to my notion, has no more influence upon the question between us than the restriction bill itself has.—

  We are agreed in opinion with respect to the circumstance[s] which constitute the one metal a measure of value, in preference to the other, to those circumstances therefore, and to those only, must we look in order to determine, which is that measure. That circumstance is the low valuation at which one of the metals is rated at the Mint, compared with its market price. It is admitted, that Silver is the Metal which is, at present, so circumstanced. Silver therefore, must now be the measure of value.—Indeed if we look to the fact we shall find, that there is at present more silver coin in circulation than Gold coin. And how can it be otherwise when the temptation is so great for carrying off the latter.—I confess therefore I do not see the force of the objections urged against Silver being now the measure of value, founded as they are upon the Act prohibiting the coinage of that Metal.—

  2. It is admitted, that if the debased Silver Coin were legal tender, the excess of the market price, above the mint price of silver bullion would be sufficiently accounted for by that circumstance.

  The reply to this observation is, that if the debased Silver Coin were legal tender, without limitation, the excess of the market above the mint price of that Bullion would not be merely 8pCt but a great deal more, and nearly in proportion to the extent of the debasement of that coin. The restriction imposed upon the debased Silver Coin as legal tender, is the cause, therefore, why the difference between the Mint and Market price of that bullion is not greater than it is.—

  3. It is said, ‘that it is known, that the debased coin does not pass in circulation according to its intrinsic value, but according to the value of the metal, which it ought to contain.’—This is something like begging the question, for it is asserting the point in dispute, the question between us being whether the debased Silver coin do, or do not, so pass. But in proof of this assertion Mr. R. makes use of an argument, which, I confess, I did not expect to see him advance, as it can, with the strictest propriety, be so completely turned against him. He says, ‘Compared with the Gold coin, which is undebased, is it not of equal if not of superior value to it?’ My answer is, ‘you say that Bank notes are 20 pC.^t discount[;] compare them with the Gold coin, which is undebased are they not of equal value to it?’ If there be any truth in your argument, there is equal truth in mine; and I may exclaim with you ‘What pretence can there be then for saying, that the debased value of Bank Notes is a cause of the increase in the price of commodities?’

  The same remarks may be applied to Mr. R’s supposed case of a Merchant with his Warehouse full of Goods, desirous of purchasing silver bullion for the purpose of exportation. Mr. R. says ‘that if the Merchant could sell his goods, at once, for heavy silver coin, and melt it, he would obtain 8 pC.^t more silver than if with the money he purchased Silver bullion.’ This I deny, for I contend, that if the heavy silver coin were in circulation, instead of the light, the present difference between the market and mint price of silver bullion would not exist. The cause for that difference being removed, the effect would necessarily cease.

  Again, Mr. R. observes, that the fact is ‘that £1000 in such debased Silver will purchase precisely as much silver bullion as £1000 in gold coin’, to this I may reply, with equal propriety, that the fact is, that £1000 in Bank Notes will purchase precisely as much silver Bullion as £1000 in Gold coin. The argument here employed by Mr. R. will serve my cause equally well with his own, Mr. R. must therefore either abandon this argument by which he attempts to prove, that the debased silver coin passes in circulation according to the value of the metal which it ought to contain, or he must entirely abandon the question between us. For it is quite as strong to prove, that Bank Notes are not at a discount, as it is to prove, that our Silver coins are not [at] a discount—or, in other words, if it be sufficient to shew, that the debased Silver coin is not a cause of the increase in the price of commodities, it is equally sufficient to shew, that the amount of Bank Notes in circulation is not a cause of that increase.

  I have now observed upon Mr. R’s remarks as far as they relate to this point, and wait his reply.—

  [A FURTHER REPLY BY RICARDO]1

  ‘Now, in point of fact,’ says Mr. Trower, ‘Bank notes, at present, represent neither gold or silver, the Bank being prohibited from paying their notes in either.’2 The dispute between Mr. Trower and myself, as I understood it, was, whether a bank note was an obligation to pay either. It is true that the bank is by law exempted from fulfilling its obligations, but that fact does not prevent us from ascertaining what their engagement is, and in what manner they would be obliged to perform it if the law were repealed. Here then is the difference in our view of the subject. Mr. Trower contends that if the Bank were suddenly obliged to fulfill their engagements they could and would pay in silver coin it being their interest so to do; I on the contrary maintain that if so called upon they would be obliged to pay in gold coin,—that the silver coin is insufficient for the purpose and that by an express law there can be no silver coined. I admit that if silver could be coined that metal would be preferred because it could be obtained at the least expence,— but that, whilst there is a law against the coinage of silver it is in fact reducing us to the use of gold only. The full extent of what I am contending for is allowed by Mr. Trower when he says, ‘If at that period of time’ (when the restriction on the bank shall be removed) ‘the law inhibiting the coinage of silver money should continue in force, in that case undoubtedly gold must be considered as the measure of value in this country.’ Is it fair that Mr. T should not argue on things as they are, but on those which he supposes may take place at some future period? The act prohibiting the coinage of silver may be repealed, and when that happens Mr. Trower may be right, silver may then become the standard measure of value, but whilst the law continues in force gold must necessarily be that measure, and the value of bank notes therefore must be estimated by their comparative value with gold coin or bullion.

  The fact of there being more silver coin in circulation than gold can be easily accounted for; in the first place there are no bank notes of less amount than one pound hence a necessity for the use of silver in small payments. Secondly, Bank notes being a substitute for gold coins there is absolutely no use for guineas, this joined to their high value compared with their substitute sufficiently accounts for their disappearing from circulation, and lastly the gold coin having retained its standard weight whilst the silver coin is debased 40 p ct. renders it advantageous to melt guineas and to retain the silver in circulation.

  With respect to the second point in dispute, the effect on the prices of commodities, and of gold and silver bullion, which Mr. Trower supposes to have been produced by the debased state of the silver coins. Why, I would ask, if such be the fact was not the same effect produced on the market prices of those metals before the restriction on the Bank in 1797?

  It will not be a satisfactory answer to say, because gold coin was then the standard measure, and, that coin not being debased no such effects followed. I say this would not be satisfactory because gold was the measure of value, only as it would more advantageously discharge a debt than standard silver coin;—but we are not now speaking of the standard silver coin but of the debased silver coin. The debased silver would then, as well as now have been comparatively cheaper than the gold coin and could then, if it can now, have been more advantageously employed for the discharge of a debt; but no such effects followed then; gold bullion was steadily under its mint price and silver bullion was only above it because of the inaccurate determination of the mint proportions. Perhaps a little further consideration will make this more clear. In 1797 the silver coin was debased 24 p. ct.; at the same time the proportionate value of gold and silver was, in the market, as 14¾ to 1 whilst in the coin they were estimated as 15 to 1, gold was therefore the measure of value if the standard metals be compared;—but gold compared with the debased coin was as 19 to 1, there were therefore the same reasons then as there are now for gold bullion being above the mint price, as far as the debasement of silver was concerned; therefore I contend, that if as Mr. Trower supposes the price of commodities be now affected by the debased state of the silver coin, they must for the same reason have been equally so in 1797 and for many years before it. Will Mr. Trower explain why no such effect followed, Gold having been before 1797 for 23 years under its mint price?

  I have said ‘Compare the debased silver coin with the gold coin which is undebased, is it not of equal value to it?’ Mr. Trower answers ‘You say that Bank notes are 20 p.c. disct compare them with the gold coin which is undebased, are they not of equal value to it?’ Mr. Trower in another place observes that if the fact be as I state that £1000 in debased silver coin will purchase precisely as much gold or silver bullion as £1000 in gold coin, so is it also a fact that £1000 in Bank notes will do the same. If then it be admitted that at this time £1000 either in gold coin, in debased silver coin, or in Bank notes are precisely of the same value when used in the purchase of commodities, what is the cause that neither of these will purchase as much gold or silver bullion as they did in 1797 previously to the Bank restriction bill? And, tho’ they may be of the same value in circulation here at home, is this agreement in their value forced or natural?

  It must be evident that it is not by the value of the undebased gold coin, that the values of the bank notes and of debased silver are at present regulated. If they were so, gold would not be above its mint price because Mr. Trower has always agreed that no one would give more than an ounce of gold for an ounce of gold, gold could not therefore be at £4- 10/ or £4- 13/ per oz, if the value of the circulating medium were generally equal to that of the gold coin. It necessarily follows that the value of the gold coin is brought down to that of the debased silver, or to the Bank notes. But I have already remarked that the debased silver was always previously to 1797 brought up (because it was always moderate in its quantity) to the value of the gold coins, and that altho’ it was legal tender to a certain amount, it was neither sufficiently abundant nor sufficiently current to raise the price of gold bullion above its mint price. Not an instance has occurred of a purchaser of gold bullion having paid a penny an ounce more for it in consequence of his wish of paying in debased silver coin.

  If then gold and silver coins be of the same value and at the same time are depreciated in their exchangeable value to ⅘of their true value; to the value in short of the Bank notes which are in circulation with them, to what can we attribute this phenomenon but to the depreciation of Bank notes? Let us suppose the law against the exportation of guineas repealed, Mr. Trower would not then contend that gold coin, silver coin and bank notes would be of equal value because he has already admitted that more than an ounce of gold would not be given for an ounce of gold; but under those circumstances gold would continue to sell for £4- 10/ or £4- 13/ for bank notes or for debased shillings, but for gold coin it would not be higher than £3 - 17 - 10½ per oz.

  The present value at which gold coin passes in circulation is a forced value; its natural value is 15 p.c. above its forced value, but repeal the law, withdraw the force by which it is kept down, and it will immediately recover its natural value. If then I were to yield the first point in dispute and allow that Bank notes were obligations to pay silver and not gold coin, it would be evident that no other effect could be produced on the prices of gold or silver bullion, or on any other commodities from the debasement of the silver coin but the trifling one occasioned by a very small proportion of the debased silver coin being considered legal tender.

  Before the recoinage of the gold coin in the year 1774, gold bullion, as I have already observed, was at £4 pr oz, being 2/1½ above the mint price. The debasement of the gold coin must have had a similar effect in raising the prices of all other commodities. This is a principle no longer disputed. Immediately on the recoinage gold fell under its mint price.

  Whilst the gold coin was thus debased a guinea fresh from the mint and consequently undebased or any other which had been hoarded and had not partaken of the debasement, would have purchased no more goods than a worn and de-based guinea, but it would not thence be argued that the debased and the new guinea were of equal value, it being manifest that the prices of all commodities were regulated, not by the quantity of gold in the new guineas, but by the quantity actually contained in the old.

  In like manner, now, though a few guineas may be in circulation and may pass in the purchase of commodities for no more than an equal amount in Bank notes, the prices of commodities are regulated not by the quantity of gold which the guineas contain, but by the quantity which the Bank notes will purchase. These two quantities must, if the coin be undebased, and the bank notes not depreciated, be always nearly equal.

  The fact of gold coin having been for near a century the principal measure of value is I think placed beyond dispute by the arguments of Lord Liverpool.1 They are briefly as follows. The debasement of the silver coin has not during that period caused any excess of the market above the mint price of either gold or silver bullion;—neither has it produced any effect on the exchanges with foreign countries, whereas the debasement of the gold coin which occurred during a part of the century never failed to produce a rise in the market price of gold and silver bullion and a corresponding effect on the rate of exchange; that immediately on the gold coin being brought to its present state of perfection the price of bullion fell under its mint price and the foreign exchanges were at par, if not favorable to us.

  Lord Liverpool has clearly proved this fact, but has not given any satisfactory reasons why gold should be the standard measure of value in preference to silver.

  It appears to me that gold must be the principal measure, if not the only measure of value, whilst the relative value of gold and silver is less in the market than the relative value of those metals in the coins, according to the mint regulations.

  Gold and silver coins are equally by law legal tender for all sums if of their legal weight.

  By the regulations of the mint gold is 15 times the value of silver. In the market up to the period when Lord Liverpool wrote, gold was only 14¾ times, on an average of a very long period, more valuable than silver. It became therefore the interest of every debtor to pay his debt in the gold coin and also the interest of every person, as well as the bank, who carried bullion to the mint to be coined, to carry gold and not silver for that purpose. Thus, if I were a merchant having my warehouses well stocked with goods and was in debt £1000—I could purchase as much gold bullion as is contained in a thousand pounds with less goods than I should be obliged to part with to obtain the quantity of silver bullion contained in a £1000,—this would determine me to purchase the gold and not the silver, and to carry the gold and not the silver to the mint to be coined. Whilst gold was only 14¾ the value of silver, the price of silver bullion would be always above its mint price, there would be a loss therefore to the bank in purchasing silver bullion to be coined,— whereas there would be no such loss in purchasing gold bullion for that purpose. It appears therefore evident that it is only whilst gold is less valuable in the market compared with silver, than it is by the mint regulations, that it will be the only measure of value. Bank notes will whilst this continues be the representatives of the gold coin, because the bank will always pay in the coin which can be coined at the least expence to them.

  But, if in the course of time, as it appears lately to have done, gold should become more valuable, and be in the market at a greater proportion to silver than it is in the coins,—if it should be 15½ or 16 times the value of silver, gold would be above its mint price and silver would be at or below its mint value. Gold could then be profitably melted and silver could be profitably coined; silver would therefore become the standard of value; the bank would pay its notes in silver and consequently bank notes would become the representatives of the silver and not the gold coin. Indeed this is Mr. Trower’s argument. The high price of gold bullion, he justly contends, is no proof of the depreciation of bank notes because gold bullion may rise above its mint value from an alteration in its relative value to silver, tho’ a bank note were not in existence. It will be seen by what I have already said that I unequivocally admit the truth of this position.

  But if a high price of gold bullion proceeded from this cause the price of silver bullion would never whilst the coins of full weight only were legal tender, be above the mint price. No one contended when the price of silver bullion was above its mint price and the gold bullion was at or below its mint value (and this was the case generally previous to1797) that bank notes were depreciated; and, if the price of gold bullion were 20 p.c. above its mint price, and silver bullion were at its mint price, I should allow that bank notes were not at a discount;—but when the prices of both the metals are above the mint prices it is proof conclusive of bank notes being at a discount.

  Mr. Trower wishes to account for this from the acknowledged fact of the silver currency being debased.—If this debased currency were legal tender I should not dispute the point with him,—but it is acknowledged by him that it is not;—the debasement of the silver therefore cannot be the cause of the high price of silver bullion.

  I shall now answer a few of the observations of Mr. Trower1 on my last letter in the Chronicle.2

  I quoted the price of silver at 5/9½ without any view of making my argument better or worse. The price of 5/7 was not I believe mentioned by Mr. Trower at the time he wrote, nor did I reflect that it was on that price that his calculations were made; but as he observes, it is for principles we are contending, therefore 5/7 will suit my purpose just as well as 5/9½.

  To Mr. Trower there appear inconsistencies in my saying that, [‘]if silver be the standard of currency Bank notes were in 1797 at a prem^m of 24 p. c. and are now at a prem^m of 14[’]; this is on the supposition of the debased silver currency being the standard, because £100 in bank notes would purchase in 1797 24 p. c. more silver bullion than what was contained in £100 in the debased silver currency and would now at its present price purchase 14 p. c. more. I have said too that ‘if we estimate the value of Bank notes by silver bullion they will be found to be 12 p. c. dis^t.’ and in another place ‘if silver be the standard currency Bank notes are at a disc^t. of 11 p.c.’ I am called upon to explain these passages. I meant that if our silver currency was perfectly of its mint weight and consequently as good as an equal quantity of bullion, Bank notes would if estimated by such a medium be 12 p. c. dis^t.,—but, as our currency is not thus pure, as by law in large paym^ts a creditor may be forced to accept as much as £25 in debased currency, bank notes were if estimated by our silver currency at a discount of 11 p. c.

  In the calculations made by Mr. Trower he attributes all the excess of the market above the mint price of gold to the debasement of the silver coin, except that part of it which is occasioned by an alteration in the relative value of the two metals. He is correct in estimating the alteration in the relative value of gold and silver (at the price he quotes, £4-13/ and 5/7) at 11. 7. 2 pr ct, but he jumps to the conclusion in attributing the balance of the rise of gold above bank notes viz. 8. 1. 3 to the debasement of the silver currency,—he takes for granted that which is the subject of dispute and does not explain to us his data. By the same rule if he were to take the present prices of gold and silver bullion viz. £4. 10/ and 5/9½, he must for the effects of the debasement of the silver coin calculate on no less than 12 p. c. Now he will not say that the debasement of the silver coin has increased since this discussion commenced, therefore he must find out some other cause for the difference between £8. 1. 3 and £12.—

  Mr. Trower says that if one metal only were in circulation the market would exceed the mint price in exact proportion to the debasement of the coin, but when it consists of two metals it does not follow that the bullion should be paid for in the depreciated currency. From what has already been said, though we have two metals in circulation one must necessarily be driven from circulation;—and as the depreciated silver is not legal tender no value can be estimated by it.

  I am accused of stating an impossible case and it is asked ‘what confidence can be placed upon such an hypothesis? it is a mode of reasoning as unusual as it is unavailing.’ But is it an impossible case to suppose that my debtor should pay me in silver coin? I am contending with this gentleman that Bank notes are at discount, and in proof of my position I state that if my debtor were to pay me his debt in silver he would by law be obliged to pay me as much as would be equal in value to £1120 in Bank notes. Is not this a fair argument to prove that the silver contained in a £1000 is more valuable than £1000 in bank notes? That it is impossible that any man should so pay me whilst the law allows him to pay me in a piece of paper which is called £1000 indeed, but can command as much silver as is contained in £900 only, is the injury of which I complain, and the fact of its being worth no more which is not denied is a proof of the injury.

  I agree with Mr. Trower that silver is a legal tender to any amount as well as gold if it be of its mint weight, but this admission on his part is fatal to his argument. With 62 standard shillings which he admits to be a pound of silver I can always purchase a pound of silver bullion. This he does not deny. It is expressly allowed by him that if silver coin be not debased silver bullion paid for in silver cannot exceed its mint price.

  But with 62/ in Bank notes I cannot purchase a pound of silver; I am obliged to give £3.7 in that medium for a pound of silver or a premium of £8-1-3. With what consistency can it be maintained that 62 standard shillings, such as are legal tender, are of no more value than £3-2 in bank notes?

  If the regulations of our mint had been such that every shilling weighed an ounce,—whilst the shillings were of full weight silver could never rise above a shilling an ounce, and tho’ the currency were debased and every shilling should come to weigh only half an ounce silver would not rise above one shilling an ounce whilst the law protected the seller of bullion from being paid in the debased coin. ‘It is true’ he would say ‘I have sold you silver at a shilling an ounce but the shilling you tender me is not full weight, you must therefore pay me by weight at the mint price of a shilling.[’] The seller would therefore ultimately receive two debased shillings tho’ he had sold his silver for one. That such was the state of the silver bullion market we have the experience of near a century. Silver bullion was rarely much above its mint price and the excess which did exist was attributable to the alteration in the relative value of gold and silver. It was paid for in gold, and therefore gold was at its mint value.

  [1 ]Morning Chronicle, 29 Aug. 1809.

  [1 ]Morning Chronicle, 20 Sept. 1809.

  [1 ]The letter, under the title ‘Price of Gold’, signed ‘A Friend to Bank-notes but no Bank Director’ and dated 11 September, appeared in the Morning Chronicle of 14 September 1809. The writer was Hutches Trower.

  [1 ]Trower, in the Morning Chronicle of 14 September, had written: ‘Perhaps, when the period arrives at which it may be deemed proper to take off that restriction which forbids the Bank to pay its notes in specie, it may be necessary to alter the standard price of gold, in order to bring it nearer to the market price; and there by to prevent that exportation, which otherwise will unquestionably take place.’ Ricardo points out here that as long as there is a law prohibiting the exportation of gold coined into guineas, while the exportation of other forms of gold is permitted (cp. p. 24), the latter will continue to exceed the former in price; and if the price of gold in guineas were raised from 3l. 17s. 10½d. to 4l. 13s., the market price of exportable gold would rise from 4l. 13s. to 5l. 11s. 7d. In the Morning Chronicle of 30 October, Trower accepted the correction: ‘I am ready to admit, that in the suggestion which I hazarded with respect to the alteration in the standard price of coin, I was inadvertently led into an error, which I shortly detected on reflection; but not in time to exclude the remark from my letter.’

  [1 ]Wealth of Nations, Bk. 11, ch. iv.

  [2 ]In an article under the title ‘Jacobin Guineas’, in Cobbett’s Political Register of 16 Sept. 1809, referring to ‘the philosopher who writes in the Chronicle’, Cobbett had said: ‘Besides does this writer imagine, that the country-bankers would not make money to supply the place of any reduction at the Bank of England?’

  [1 ]A first letter signed ‘Mercator’ and dated ‘London, Sept. 4’ appeared in the Morning Chronicle of 7 Sept. 1809; the writer unreservedly supported Ricardo’s views as expressed in the article of 29 August. A writer who signed himself ‘No Trafficker’ replied to ‘Mercator’ in a letter to the Pilot newspaper of 8 Sept. 1809, criticising both him and Ricardo. ‘Mercator’ answered in a second letter, under the title ‘The High Price of Gold’, in the Morning Chronicle of 12 September. A final rejoinder of ‘No Trafficker’ appeared in the Pilot of 13 September; this is the letter to which Ricardo refers.

  [1 ]Morning Chronicle, 23 Nov. 1809.

  [2 ]Another letter from ‘A Friend to Bank-notes but no Bank Director’ (i.e. Trower), under the title ‘Price of Gold, Letter ii’ and dated 23 September had appeared in the Morning Chronicle of 30 Oct. 1809.

  [3 ]Above, p. 16.

  [1 ]Both quotations are from Trower’s letter in the Morning Chronicle of 14 Sept. 1809.

  [1 ]A Treatise on the Coins of the Realm; in a Letter to the King, by Charles Earl of Liverpool, Oxford, 1805, p. 129.

  [2 ]Lord Liverpool says in addition: ‘that is, in reference to the quantity of Gold Coins, for which they could be exchanged;’.

  [1 ]This and the following quotations occur in Lord Liverpool’s Treatise, pp. 141–5.

  [1 ]ib. p. 153.

  [ii],p.89.

  [2 ]Cp. below, p. 75.

  [iii.]

  [1 ]This and the subsequent references are to a missing paper by Ricardo.

  [1 ]In Letters to Trower a paper of a later date was prefixed to this Reply; in the present edition it is printed below, p. 407 ff.

  [2 ]This and the subsequent references, up to p. 43, n. 1, are to the preceding paper by Trower.

  [1 ]A Treatise on The Coins of the Realm, pp. 132–45.

  [1 ]These observations of Trower are missing.

  [2 ]Above, p. 28.

• Back to Top

  2: The High Price of Bullion [1810/2004]

  David Ricardo, The Works and Correspondence of David Ricardo, ed. Piero Sraffa with the Collaboration of M.H. Dobb (Indianapolis: Liberty Fund, 2005). Vol. 3 Pamphlets and Papers 1809-1811. Chapter: THE HIGH PRICE OF BULLION 1810– 11

  Accessed from oll.libertyfund.org/title/204/38448 on 2010-02-03

  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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  THE HIGH PRICE OF BULLION
  1810– 11

  

  High Price of Bullion 1810 edition.

  

  High Price of Bullion 1811 edition.

  

  Observations on the Depreciation of Paper Currency 1810 edition.

  INTRODUCTION1

  The writer of the following pages has already submitted some reflections to the attention of the public, on the subject of paper-currency, through the medium of the Morning Chronicle. He has thought proper to republish his sentiments on this question in a form more calculated to bring it to fair discussion; and his reasons for so doing, are, that he has seen, with the greatest alarm, the progressive depreciation of the paper-currency. His fears have been augmented by observing, that by a great part of the public this depreciation is altogether denied, and that by others, who admit the fact, it is imputed to any cause but that which to him appears the real one. Before any remedy can be successfully applied to an evil of such magnitude, it is essential that there should be no doubt as to its cause. The writer proposes, from the admitted principles of political economy, to advance reasons, which, in his opinion, prove, that the paper-currency of this country has long been, and now is, at a considerable discount, proceeding from a superabundance in its quantity, and not from any want of confidence in the Bank of England, or from any doubts of their ability to fulfil their engagements. He does this without reluctance, being fully persuaded that the country is yet in possession of the means of restoring the paper-currency to its professed value, viz. the value of the coins, for the payment of which it purports to be a pledge.

  He is aware that he can add but little to the arguments which have been so ably urged by Lord King,2 and which ought long before this to have carried conviction to every mind; but he trusts, that as the evil has become more glaring, the public will not continue to view, without interest, a subject which yields to no other in importance, and in which the general welfare is so materially concerned.

  Dec. 1, 1809.

  HIGH PRICE OF BULLION, A PROOF OF THE DEPRECIATION OF BANK NOTES

  The precious metals employed for circulating the commodities of the world, previously1 to the establishment of banks, have been supposed by the most approved writers on political economy to have been divided into certain proportions among the different civilized nations of the earth, according to the state of their commerce and wealth, and therefore according to the number and frequency of the payments which they had to perform. While so divided they preserved every where the same value, and as each country had an equal necessity for the quantity actually in use, there could be no temptation offered to either for their importation or exportation.

  Gold and silver, like other commodities, have an intrinsic value, which is not arbitrary, but is dependent on their scarcity, the quantity of labour bestowed in procuring them, and the value of the capital employed in the mines which produce them.

  “The quality2 of utility, beauty, and scarcity,” says Dr. Smith, “are the original foundation of the high price of those metals, or of the great quantity of other goods for which they can every where be exchanged. This value was antecedent to, and independent of their being employed as coin, and was the quality which fitted them for that employment.”1

  If the quantity of gold and silver in the world employed as money were2 exceedingly small, or abundantly great, it would not in the least affect the proportions in which they would be divided among the different nations—the variation in their quantity would have produced no other effect than to make the commodities for which they were exchanged comparatively dear or cheap. The smaller quantity of money would perform the functions of a circulating medium, as well as the larger. Ten millions would be as effectual for that purpose as one hundred millions. Dr. Smith observes, “that the most abundant mines of the precious metals would add little to the wealth of the world. A produce of which the value is principally derived from its scarcity is necessarily degraded by its abundance.”3

  If in the progress towards wealth, one nation advanced more rapidly than the others, that nation would require and obtain a greater proportion of the money of the world. Its commerce, its commodities, and its payments, would increase, and the general currency of the world would be divided according to the new proportions. All countries therefore would contribute their share to this effectual demand.

  In the same manner if any nation wasted part of its wealth, or lost part of its trade, it could not retain the same quantity of circulating medium which it before possessed. A part would be exported, and divided among the other nations till the usual proportions were re-established.

  While the relative situation of countries continued unaltered, they might have abundant commerce with each other, but their exports and imports would on the whole be equal. England might possibly import more goods from, than she would export to, France, but she would in consequence export more to some other country, and France would import more from that country; so that the exports and imports of all countries would balance each other; bills of exchange would make the necessary payments, but no money would pass, because it would have the same value in all countries.

  If a mine of gold were discovered in either of these countries, the currency of that country would be lowered in value in consequence of the increased quantity of the precious metals brought into circulation, and would therefore no longer be of the same value as that of other countries. Gold and silver, whether in coin or in bullion, obeying the law which regulates all other commodities, would immediately become articles of exportation; they would leave the country where they were cheap, for those countries where they were dear, and would continue to do so, as long as the mine should prove productive, and till the proportion existing between capital and money in each country before the discovery of the mine, were1 again established, and gold and silver restored every where to one value. In return for the gold exported, commodities would be imported; and though what is usually termed the balance of trade would be against the country exporting money or bullion, it would be evident that she was carrying on a most advantageous trade, exporting that which was no way useful to her, for commodities which might be employed in the extension of her manufactures, and the increase of her wealth.

  If instead of a mine being discovered in any country, a bank were established, such as the Bank of England, with the power of issuing its notes for a circulating medium; after a large amount had been issued either by way of loan to merchants, or by advances to government, thereby adding considerably to the sum of the currency, the same effect would follow as in the case of the mine. The circulating medium would be lowered in value, and goods would experience a proportionate rise. The equilibrium between that and other nations would only be restored by the exportation of part of the coin.

  The establishment of the bank and the consequent issue of its notes therefore, as well as the discovery of the mine, operate as an inducement1 to the exportation either of bullion or of coin, and are beneficial only in as far as that object may be accomplished. The bank substitutes a currency of no value for one most costly, and enables us to turn the precious metals (which, though a very necessary part of our capital, yield no revenue,) into a capital which will yield one. Dr. A. Smith compares2 the advantages attending the establishment of a bank to those which would be obtained by converting our highways into pastures and corn-fields, and procuring a road through the air. The highways, like the coin, are highly useful, but neither yield any revenue. Some people might be alarmed at the specie leaving the country, and might consider that as a disadvantageous trade which required us to part with it; indeed the law so considers it by its enactments against the exportation of specie; but a very little reflection will convince us that it is our choice, and not our necessity, that sends it abroad; and that it is highly beneficial to us to exchange that commodity which is superfluous, for others which may be made productive.

  The exportation of the specie may at all times be safely left to the discretion of individuals; it will not be exported more than any other commodity, unless its exportation should be advantageous to the country. If it be advantageous to export it, no laws can effectually prevent its exportation. Happily in this case, as well as in most others in commerce where there is free competition, the interests of the individual and that of the community are never at variance.

  Were it possible to carry the law against melting or exporting1 of coin2 into strict execution, at the same time that the exportation of gold bullion was freely allowed, no advantage could accrue from it, but great injury must arise to those who might have to pay, possibly, two ounces or more of coined gold for one of uncoined gold. This would be a real depreciation of our currency, raising the prices of all other commodities in the same proportion as it increased that of gold bullion. The owner of money would in this case suffer an injury equal to what a proprietor of corn would suffer, were a law to be passed prohibiting him from selling his corn for more than half its market value. The law against the exportation of the coin has this tendency, but is so easily evaded, that gold in bullion has always been nearly of the same value as gold in coin.

  Thus then it appears that the currency of one country can never for any length of time be much more valuable, as far as equal quantities of the precious metals are concerned, than that of another; that excess of currency is but a relative term; that if the circulation of England were ten millions, that of France five millions, that of Holland four millions, &c. &c. whilst they kept their proportions, though the currency of each country were doubled or trebled, neither country would be conscious of an excess of currency. The prices of commodities would every where rise, on account of the increase of currency, but there would be no exportation of money from either. But if these proportions be destroyed by England alone doubling her currency, while that of France, Holland, &c. &c. continued as before, we should then be conscious of an excess in our currency, and for the same reason the other countries would feel a deficiency in theirs, and part of our excess would be exported till the proportions of ten, five, four, &c. were again established.

  If in France an ounce of gold were more valuable than in England, and would therefore in France purchase more of any commodity common to both countries, gold would immediately quit England for such purpose, and we should send gold in preference to any thing else, because it would be the cheapest exchangeable commodity in the English market; for if gold be dearer in France than in England, goods must be cheaper; we should not therefore send them from the dear to the cheap market, but, on the contrary, they would come from the cheap to the dear market, and would be exchanged for our gold.

  The Bank might continue to issue their notes, and the specie be exported with advantage to the country, while their notes were payable in specie on demand, because they could never issue more notes than the value of the coin which would have circulated had there been no bank* .

  If they attempted to exceed this amount, the excess would be immediately returned to them for specie; because our currency, being thereby diminished in value, could be advantageously exported, and could not be retained in our circulation.1 These are the means, as I have already explained, by which our currency endeavours to equalize itself with the currencies of other countries. As soon as this equality was attained, all advantage arising from exportation would cease; but if the Bank assuming, that because a given quantity of circulating medium had been necessary last year, therefore the same quantity must be necessary this, or for any other reason, continued to re-issue the returned notes, the stimulus which a redundant currency first gave to the exportation of the coin would be again renewed with similar effects; gold would be again demanded, the exchange would become unfavourable, and gold bullion would rise, in a small degree,1 above its mint price, because it is legal to export bullion, but illegal to export the coin, and the difference would be about equal to the fair compensation for the risk.

  In this manner if the Bank persisted in returning their notes into circulation, every guinea might be drawn out of their coffers.

  If to supply the deficiency of their stock of gold they were to purchase gold bullion at the advanced price, and have it coined into guineas, this would not remedy the evil, guineas would be still demanded, but instead of being exported would be melted and sold to the Bank as bullion at the advanced price. “The operations of the Bank,” observed Dr. Smith, alluding to an analogous case,2 “were upon this account somewhat like the web of Penelope, the work that was done in the day was undone in the night.” The same sentiment is expressed by Mr. Thornton3 :—“Finding the guineas in their coffers to lessen every day, they must naturally be supposed to be desirous of replacing them by all effectual and not extravagantly expensive means. They will be disposed, to a certain degree, to buy gold, though at a losing price, and to coin it into new guineas; but they will have to do this at the very moment when many are privately melting what is coined. The one party will be melting and selling while the other is buying and coining. And each of these two contending businesses will now be carried on, not on account of an actual exportation of each melted guinea to Hamburgh, but the operation or at least a great part of it will be confined to London; the coiners and the melters living on the same spot, and giving constant employment to each other.

  “The Bank,” continues Mr. Thornton, “if we suppose it, as we now do, to carry on this sort of contest with the melters, is obviously waging a very unequal war; and even though it should not be tired early, it will be likely to be tired sooner than its adversaries.”

  The Bank would be obliged therefore ultimately to adopt the only remedy in their power to put a stop to the demand for guineas. They would withdraw part of their notes from circulation, till they should have increased the value of the remainder to that of gold bullion, and consequently to the value of the currencies of other countries. All advantage from the exportation of gold bullion would then cease, and there would be no temptation to exchange bank-notes for guineas.

  In this view of the subject, then, it appears, that the temptation to export money in exchange for goods, or what is termed an unfavourable balance of trade, never arises but from a redundant currency. But1 Mr. Thornton, who has considered this subject very much at large, supposes2 that a very unfavourable balance of trade may be occasioned to this country by a bad harvest, and the consequent importation of corn; and that there may be at the same time an unwillingness in the country, to which we are indebted, to receive our goods in payment; the balance due to the foreign country must therefore be paid out of that part of our currency, consisting of coin, and that hence arises the demand for gold bullion and its increased price. He considers the Bank as affording considerable accommodation to the merchants, by supplying with their notes the void occasioned by the exportation of the specie.1

  As it is acknowledged by Mr. Thornton, in many parts of his work, that the price of gold bullion is rated in gold coin; and as it is also acknowledged by him,2 that the law against melting gold coin into bullion and exporting it is easily evaded, it follows, that no demand for gold bullion, arising from this or any other cause, can raise the money price of that commodity. The error of this reasoning proceeds from not distinguishing between an increase in the value of gold, and an increase in its money price.

  If there were a great demand for corn its money price would advance; because, in comparing corn with money, we in fact compare it with another commodity; and for the same reason, when there is a great demand for gold its corn price will increase; but in neither case will a bushel of corn be worth more than a bushel of corn, or an ounce of gold more than an ounce of gold. An ounce of gold bullion could not, whatever the demand might be, whilst its price was rated in gold coin, be of more value than an ounce of coined gold, or 3l. 17s. 10½d.

  If this argument should not be considered as conclusive, I should urge, that a void in the currency, as here supposed, can only be occasioned by the annihilation or limitation of paper currency, and then it would speedily be filled by importations of bullion, which its increased value, in consequence of the diminution of circulating medium, would infallibly attract to the advantageous market. However great the scarcity of corn might be, the exportation of money would be limited by its increasing scarcity. Money is in such general demand, and in the present state of civilization is so essential to commercial transactions, that it can never be exported to excess; even in a war such as the present, when our enemy endeavours to interdict all commerce with us, the value which the currency would bear, from its increasing scarcity, would prevent the exportation of it from being carried so far as to occasion a void in the circulation.

  Mr. Thornton has not explained to us, why any unwillingness should exist in the foreign country to receive our goods in exchange for their corn; and it would be necessary for him to show, that if such an unwillingness were to exist, we should agree to indulge it so far as to consent to part with our coin.

  If we consent to give coin in exchange for goods, it must be from choice, not necessity. We should not import more goods than we export, unless we had a redundancy of currency, which it therefore suits us to make a part of our exports. The exportation of the coin is caused by its cheapness, and is not the effect, but the cause of an unfavourable balance: we should not export it, if we did not send it to a better market, or if we had any commodity which we could export more profitably. It is a salutary remedy for a redundant currency; and as I have already endeavoured to prove, that redundancy or excess is only a relative term, it follows, that the demand for it abroad arises only from the comparative deficiency of the currency of the importing country, which there causes its superior value.

  It resolves itself entirely into a question of interest. If the sellers of the corn to England, to the amount I will suppose of a million, could import goods which cost a million in England, but would produce, when sold abroad, more than if the million had been sent in money, goods would be preferred; if otherwise, money would be demanded.

  It is only after a comparison of the value in their markets and in our own, of gold and other commodities, and because gold is cheaper in the London market than in theirs, that foreigners prefer gold in exchange for their corn. If we diminish the quantity of currency, we give an additional value to it: this will induce them to alter their election, and prefer the commodities. If I owed a debt in Hamburgh of 100l. I should endeavour to find out the cheapest mode of paying it. If I send money, the expence attending its transportation being I will suppose 5l. to discharge my debt will cost me 105l. If I purchase cloth here, which, with the expences attending its exportation, will cost me 106l. and which will, in Hamburgh, sell for 100l. it is evidently more to my advantage to send the money. If the purchase and expences of sending hardware to pay my debt, will take 107l. I should prefer sending cloth to hardware, but I would send neither in preference to money, because money would be the cheapest exportable commodity in the London market. The same reasons would operate with the exporter of the corn, if the transaction were on his own account. But if the Bank, “fearful for the safety of their establishment,”1 and knowing that the requisite number of guineas would be withdrawn from their coffers at the mint price, should think it necessary to diminish the amount of their notes in circulation, the proportion between the value of the money, of the cloth, and of the hardware, would no longer be as 105, 106, and 107; but the money would become the most valuable of the three, and therefore would be less advantageously employed in discharging the foreign debts.1

  If, which is a much stronger case, we agreed to pay a subsidy to a foreign power, money would not be exported whilst there were any goods which could more cheaply discharge the payment. The interest of individuals would render the exportation of the money unnecessary* .2

  Thus then specie will be sent abroad to discharge a debt only when it is superabundant; only when it is the cheapest exportable commodity. If the Bank were at such a time paying their notes in specie, gold would be demanded for that purpose. It would be obtained there at its mint price, whereas its price as bullion would be something above its value as coin, because bullion could, and coin could not, be legally exported.

  It is evident, then, that a depreciation of the circulating medium is the necessary consequence of its redundance; and that in the common state of the national currency this depreciation is counteracted by the exportation of the precious metals* .

  Such, then, appear to me to be the laws that regulate the distribution of the precious metals throughout the world, and which cause and limit their circulation from one country to another, by regulating their value in each. But before I proceed to examine on these principles the main object of my enquiry, it is necessary that I should shew what is the standard measure of value in this country, and of which, therefore, our paper currency ought to be the representative, because it can only be by a comparison to this standard that its regularity, or its depreciation, may be estimated.

  No permanent* measure of value can be said to exist in any nation while the circulating medium consists of two metals, because they are constantly subject to vary in value with respect to each other. However exact the conductors of the mint may be, in proportioning the relative value of gold to silver in the coins, at the time when they fix the ratio, they cannot prevent one of these metals from rising, while the other remains stationary, or falls in value. Whenever this happens, one of the coins will be melted to be sold for the other. Mr. Locke1 , Lord Liverpool, and many other writers, have ably considered this subject, and have all agreed, that the only remedy for the evils in the currency proceeding from this source, is the making one of the metals only the standard measure of value. Mr. Locke considered2 silver as the most proper metal for this purpose, and proposed that gold coins should be left to find their own value, and pass for a greater or lesser number of shillings, as the market price of gold might vary with respect to silver.

  Lord Liverpool, on the contrary, maintained1 that gold was not only the most proper metal for a general measure of value in this country, but that, by the common consent of the people, it had become so, was so considered by foreigners, and that it was best suited to the increased commerce and wealth of England.

  He, therefore, proposed, that gold coin only should be a legal tender for sums exceeding one guinea, and silver coins for sums not exceeding that amount. As the law now stands, gold coin is a legal tender for all sums; but it was enacted in the year 1774, “That no tender in payment of money made in the silver coin of this realm, of any sum exceeding the sum of twenty-five pounds at any one time, shall be reputed in law, or allowed to be legal tender within Great-Britain or Ireland, for more than according to its value by weight, after the rate of 5s. 2d. for each ounce of silver.”2 The same regulation was revived in 1798, and is now in force.3

  For many reasons given by Lord Liverpool,4 it appears proved beyond dispute, that gold coin has been for near a century the principal measure of value, but this is, I think, to be attributed to the inaccurate determination of the mint proportions. Gold has been valued too high; no silver, therefore, can remain in circulation which is of its standard weight.

  If a new regulation were to take place, and silver to be valued too high, or (which is the same thing) if the market proportions between the prices of gold and silver were to become greater than those of the mint, gold would then dis- appear, and silver become the standard currency.1

  This may require further explanation. The relative value of gold and silver in the coins is as 15 to 1. An ounce of gold which is coined into 3l. 17s. 10½d. of gold coin, is worth, according to the mint regulation, 15 ounces of silver, because that weight of silver is also coined into 3l. 17s. 10½d.2 of silver coin. Whilst the relative value of gold to silver is in the market under 15 to 1, which it has been for a great number of years till lately, gold coin would necessarily be the standard measure of value, because neither the Bank, nor3 any individual, would send 15 ozs. of silver to the mint to be coined into 3l. 17s. 10½d. when they could sell that quantity of silver in the market for more than 3l. 17s. 10½d. in gold coin, and this they could do by the supposition, that less than 15 ounces of silver would purchase an ounce of gold.

  But if the relative value of gold to silver be more than the mint proportion of 15 to 1, no gold would then be sent to the mint to be coined, because as either of the metals are a legal tender to any amount, the possessor of an ounce of gold would not send it to the mint to be coined into 3l. 17s. 10½d. of gold coin, whilst he could sell it, which he could do in such case, for more than 3l. 17s. 10½d. 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. Thus then gold would disappear from circulation, and silver coin become the standard measure of value. As gold has lately experienced a considerable rise compared with silver, (an ounce of standard gold, which, on an average of many years, was of equal value to 14¾ ozs. of standard silver, being now in the market of the same value as 15½ oz.) this would be the case now were the Bank Restriction-bill repealed, and the coinage of silver freely allowed at the mint, in the same manner as that of gold; but in an act of parliament of 39 Geo. III. is the following clause:—

  “Whereas inconvenience may arise from any coinage of silver until such regulations may be formed as shall appear necessary; and whereas from the present low price of silver bullion, owing to temporary circumstances, a small quantity of silver bullion has been brought to the mint to be coined, and there is reason to suppose that a still further quantity may be brought; and it is therefore necessary to suspend the coining of silver for the present; be it therefore enacted, That from and after the passing of this act, no silver bullion shall be coined at the mint, nor shall any silver coin that may have been coined there be delivered, any law to the contrary notwithstanding.”

  This law is now in force. It would appear, therefore, to have been the intention of the legislature to establish gold as the standard of currency in this country. Whilst this law is in force, silver coin must be confined to small payments only, the quantity in circulation being barely sufficient for that purpose. It might be for the interest of a debtor to pay his large debts in silver coin if he could get silver bullion coined into money; but being prevented by the above law from doing so, he is necessarily obliged to discharge his debt with gold coin, which he could obtain at the mint with gold bullion to any amount. Whilst this law is in force, gold must always continue to be the standard of currency.

  Were the market value of an ounce of gold to become equal to thirty ounces of silver, gold would nevertheless be the measure of value, whilst this prohibition continued in force. It would be of no avail, that the possessor of 30 ounces of silver should know that he once could have discharged a debt of 3l. 17s. 10½d. by procuring 15 ounces of silver to be coined at the mint, as he would in this case have no other means of discharging his debt but by selling his 30 oz. of silver at the market value, that is to say, for one ounce of gold, or 3l. 17s. 10½d. of gold coin.1

  The public has sustained, at different times, very serious loss from the depreciation of the circulating medium, arising from the unlawful practice of clipping the coins.

  In proportion as they become debased, so the prices of every commodity for which they are exchangeable rise in nominal value, not excepting gold and silver bullion: accordingly we find, that before the re-coinage in the reign of King William the Third, the silver currency had become so degraded, that an ounce of silver, which ought to be contained in sixty-two pence, sold for seventy-seven pence; and a guinea, which was valued at the mint at twenty shillings, passed in all contracts for thirty shillings. This evil was then remedied by the re- coinage. Similar effects followed from the debasement of the gold currency, which were again corrected in 1774 by the same means.

  Our gold coins have, since 1774, continued nearly at their standard purity; but our silver currency has again become debased. By an assay at the mint in 1798, it appears that our shillings were found to be twenty-four per cent., and our sixpences thirty-eight per cent. under their mint value; and I am informed, that by a late experiment they were found considerably more deficient. They do not, therefore, contain as much pure silver as they did in the reign of King William. This debasement, however, did not operate previously1 to 1798, as on the former occasion. At that time both gold and silver bullion rose in proportion to the debasement of the silver coin. All foreign exchanges were against us full twenty per cent., and many of them still more. But although the debasement of the silver coin had continued for many years, it had neither, previously2 to 1798, raised the price of gold nor3 silver, nor had it produced any effect on the exchanges. This is a convincing proof, that gold coin was, during that period, considered as the standard measure of value. Any debasement of the gold coin would then have produced the same effects on the prices4 of gold and silver bullion, and on the foreign exchanges, which were formerly caused by the debasement of the silver coins* .

  While the currency of different countries consists of the precious metals, or of a paper money which is at all times exchangeable for them; and while the metallic currency is not debased by wearing, or clipping, a comparison of the weight, and degree of fineness of their coins, will enable us to ascertain their par of exchange. Thus the par of exchange between Holland and England is stated to be about eleven florins, because the pure silver contained in eleven florins is equal to the pure silver contained in twenty standard shillings.

  This par is not, nor can it be, absolutely fixed; because, gold coin being the standard of commerce in England, and silver coin in Holland, a pound sterling, or of a guinea, may at different times be more or less valuable than twenty standard shillings, and therefore more or less valuable than its equivalent of eleven florins. Estimating the par either by silver or by gold will be sufficiently exact for our purpose.

  If I owe a debt in Holland; by knowing the par of exchange, I also know the quantity of our money which will be necessary to discharge it.

  If my debt amount1 to 1100 florins, and gold have not varied in value, 100l. in our pure gold coin will purchase as much Dutch currency as is necessary to pay my debt. By exporting the 100l. therefore in coin, or (which is the same thing) paying a bullion merchant the 100l. in coin, and allowing him the expences attending its transportation, such as freight, insurance, and his profit, he will sell me a bill which will discharge my debt; at the same time he will export the bullion, to enable his correspondent to pay the bill when it shall become due.

  These expences then are the utmost limits of an unfavourable exchange. However great my debt may be, though it equalled the largest subsidy ever given by this country to an ally; while I could pay the bullion-merchant in coin of standard value, he would be glad to export it, and to sell me bills. But if I pay him for his bill in a debased coin, or in a depreciated paper- money, he will not be willing to sell me his bill at this rate; because if the coin be debased, it does not contain the quantity of pure gold or silver which ought to be contained in 100l., and he must therefore export an additional number of such debased pieces of money, to enable him to pay my debt of 100l., or its equivalent, 1100 florins. If I pay him in paper- money; as he cannot send it abroad, he will consider whether it will purchase as much gold or silver bullion as is contained in the coin for which it is a substitute; if it will do this, paper will be as acceptable to him as coin; but if it will not, he will expect a further premium for his bill, equal to the depreciation of the paper.

  While the circulating medium consists, therefore, of coin undebased, or of paper-money immediately exchangeable for undebased coin, the exchange can never be more above, or more below, par, than the expences attending the transportation of the precious metals. But when it consists of a depreciated paper-money, it necessarily will fall according to the degree of the depreciation.

  The exchange will, therefore, be a tolerably accurate criterion by which we may judge of the debasement of the currency, proceeding either from a clipped coinage, or a depreciated paper-money.

  It is observed by Sir James Stuart,1 “That if the foot measure was altered at once over all England, by adding to it, or taking from it, any proportional part of its standard length, the alteration would be best discovered, by comparing the new foot with that of Paris, or of any other country, which had suffered no alteration.

  “Just so, if the pound sterling, which is the English unit, shall be found any how changed; and if the variation it has met with be difficult to ascertain, because of a complication of circumstances; the best way to discover it will be to compare the former and the present value of it, with the money of other nations which has suffered no variation. This the exchange will perform with the greatest exactness.”

  The Edinburgh reviewers, in speaking of Lord King’s pamphlet, observe,1 that “it does not follow because our imports always consist partly of bullion, that the balance of trade is therefore permanently in our favour. Bullion,” they say, “is a commodity, for which, as for every other, there is a varying demand; and which, exactly like any other, may enter the catalogue either of imports or exports; and this exportation or importation of bullion will not affect the course of exchange in a different way from the exportation or importation of any other commodities.”

  No person ever exports or imports bullion without first considering the rate of exchange. It is by the rate of exchange that he discovers the relative value of bullion in the two countries between which it is estimated. It is therefore consulted by the bullion-merchant in the same manner as the price-current is by other merchants, before they determine on the exportation or importation of other commodities. If eleven florins in Holland contain an equal quantity of pure silver as twenty standard shillings, silver bullion, equal in weight to twenty standard shillings, can never be exported from London to Amsterdam whilst the exchange is at par, or unfavourable2 to Holland. Some expence and risk must attend its exportation, and the very term par expresses that a quantity of silver bullion, equal to that weight and purity, is to be obtained in Holland by the purchase of a bill of exchange, free of all expence. Who would send bullion to Holland at an expence of three or four per cent. when, by the purchase of a bill at par, he in fact obtains an order for the delivery to his correspondent in Holland of the same weight of bullion which he was about to export?

  It would be as reasonable to contend, that when the price of corn is higher in England than on the Continent, corn would be sent, notwithstanding all the charges on its exportation, to be sold in the cheaper market.

  Having already noticed the disorders to which a metallic currency is exposed, I will proceed to consider those which, though not caused by the debased state of either the gold or silver coins, are nevertheless more serious in their ultimate consequences.1

  Our circulating medium is almost wholly composed of paper, and it behoves us to guard against the depreciation of the paper currency with at least as much vigilance as against that of the coins.

  This we have neglected to do.

  Parliament, by restricting the Bank from paying in specie, have enabled the conductors of that concern to increase or decrease at pleasure the quantity and amount of their notes; and the previously existing checks against an over-issue having been thereby removed, those conductors have acquired the power of increasing or decreasing the value of the paper currency.

  In tracing the present evils to their source, and proving their existence by an appeal to the two unerring tests I have before mentioned, namely, the rate of exchange and the price of bullion, I shall avail myself of the account given by Mr. Thornton of the conduct of the Bank before the restriction, to shew how clearly they acted on the principle which he has expressly acknowledged, viz. that the value of their notes is dependent on their amount, and that they ascertained the variation in their value by the tests I have just referred to.

  Mr. Thornton tells us, “That if at any time the exchanges of the country became so unfavourable as to produce a material excess of the market above the mint price of gold,1 the directors of the Bank, as appears by the evidence of some of their body, given to parliament, were disposed to resort to a reduction of their paper, as a means of diminishing or removing the excess, and of thus providing for the security of their establishment. They moreover have at all times,” he says, “been accustomed to observe some limit as to the quantity of their notes for the same prudential reasons.”2 And in another place: “When the price which our coin will fetch in foreign countries is such as to tempt it out of the kingdom, the directors of the Bank naturally diminish, in some degree, the quantity of their paper through an anxiety for the safety of their establishment. By diminishing their paper, they raise its value; and in raising its value, they raise also the value in England of the current coin which is exchanged for it. Thus the value of our gold coin conforms itself to the value of the current paper, and the current paper is rendered by the Bank-directors, of that value which it is necessary that it should bear in order to prevent large exportations;—a value sometimes rising a little above, and sometimes falling a little below, the price which our coin bears abroad.”1

  The necessity which the Bank felt itself under to guard the safety of its establishment, therefore, always prevented, before the restriction from paying in specie, a too lavish issue of paper money.

  Thus we find that, for a period of twenty-three years previously2 to the suspension of cash payments in 1797, the average price of gold bullion was 3l. 17s. 7¾d. per oz. about 2¾d. under the mint price; and for sixteen years previously3 to 1774, it never was much above 4l. per oz. It should be remembered that during these sixteen years our gold coin was debased by wearing, and it is therefore probable that 4l. of such debased money did not weigh as much as the ounce of gold for which it was exchanged.

  Dr. A. Smith considers4 every permanent excess of the market above the mint price of gold, as referrible to the state of the coins. While the coin was of its standard weight and purity, the market price of gold bullion, he thought, could not greatly exceed the mint price.

  Mr. Thornton contends that this cannot be the only cause. “We have,” he says,1 “lately experienced fluctuations in our exchanges, and correspondent variations in the market, compared with the mint price of gold, amounting to no less than eight or ten per cent.; the state of our coinage continuing in all respects the same.” Mr. Thornton should have reflected that at the time he wrote, specie could not be demanded at the Bank in exchange for notes; that this was a cause for the depreciation of the currency which Dr. Smith could never have anticipated. If Mr. Thornton had proved that there had been a fluctuation of ten per cent. in the price of gold, while the Bank paid their notes in specie, and the coin was undebased, he would then have convicted Dr. Smith of “having treated this important subject in a defective and unsatisfactory manner.”2*

  But as all checks against the over-issues of the Bank are now removed by the act of parliament, which restricts them from paying their notes in specie, they are no longer bound by “fears for the safety of their establishment,” to limit the quantity of their notes to that sum which shall keep them of the same value as the coin which they represent. Accordingly we find that gold bullion has risen from 3l. 17s. 7¾ d. the average price previously1 to 1797, to 4l. 10s. and has been lately as high as 4l. 13s. per oz.

  We may therefore fairly conclude that this difference in the relative value, or, in other words, that this depreciation in the actual value of bank-notes has been caused by the too abundant quantity which the Bank has sent into circulation. The same cause which has produced a difference of from fifteen to twenty per cent. in bank-notes when compared with gold bullion, may increase it to fifty per cent. There can be no limit to the depreciation which may arise from a constantly increasing quantity of paper. The stimulus which a redundant currency gives to the exportation of the coin has acquired new force, but cannot, as formerly, relieve itself. We have paper money only in circulation, which is necessarily confined to ourselves. Every increase in its quantity degrades it below the value of gold and silver bullion, below the value of the currencies of other countries.

  The effect is the same as that which would have been produced from clipping our coins.

  If one-fifth2 were taken off from every guinea, the market price of gold bullion would rise one-fifth above the mint price. Forty-four guineas and a half (the number of guineas weighing a pound, and therefore called the mint price), would no longer weigh a pound, therefore a fifth more than that quantity, or about 56l. would be the price of a pound of gold, and the difference between the market and the mint price, between 56l. and 46l. 14s. 6d. would measure the depreciation.

  If such debased coin were to continue to be called by the name of guineas, and if the value of gold bullion and all other commodities were rated in the debased coin, a guinea fresh from the mint would be said to be worth 1l. 5s. and that sum would be given for it by the illicit trader; but it would not be the value of the new guinea which had increased, but that of the debased guineas which had fallen. This would immediately be evident, if a proclamation were issued, prohibiting the debased guineas from being current but by weight at the mint price of 3l. 17s. 10½d.; this would be constituting the new and heavy guineas, the standard measure of value, in lieu of the clipped and debased guineas. The latter would then pass at their true value, and be called 17 or 18 shilling-pieces. So if a proclamation to the same effect were now enforced, bank- notes would not be less current, but would pass only for the value of the gold bullion which they would purchase. A guinea would then no longer be said to be worth 1l. 5s. but a pound note would be current only for 16 or 17 shillings. At present gold coin is only a commodity, and bank-notes are the standard measure of value, but in that case gold coin would be that measure, and bank-notes would be the marketable commodity.1

  “It is,” says Mr. Thornton,2 “the maintenance of our general exchanges, or, in other words, it is the agreement of the mint price with the bullion price of gold, which seems to be the true proof that the circulating paper is not depreciated.”

  When the motive for exporting gold occurs, while the Bank do not pay in specie, and gold cannot therefore be obtained at its mint price, the small quantity that can be procured will be collected for exportation, and bank-notes will be sold at a discount for gold in proportion to their excess. In saying however that gold is at a high price, we are mistaken; it is not gold, it is paper which has changed its value. Compare an ounce of gold, or 3l. 17s. 10½d. to commodities, it bears the same

  proportion to them which it has before done; and if it do not, it is referrible to increased taxation, or to some of those causes which are so constantly operating on its value. But if we compare the substitute of an ounce of gold, 3l. 17s. 10½d. in bank-notes, with commodities, we shall then discover the depreciation of the bank-notes. In every market of the world I am obliged to part with 4l. 10s. in bank-notes to purchase the same quantity of commodities which I can obtain for the gold that is in 3l. 17s. 10½d. of coin.

  It is often asserted, that a guinea is worth at Hamburgh 26 or 28 shillings;1 but we should be very much deceived if we should therefore conclude that a guinea could be sold at Hamburgh for as much silver as is contained in 26 or 28 shillings. Before the alteration in the relative value of gold and silver, a guinea would not sell at Hamburgh for as much silver coin as is contained in 21 standard shillings; it will at the present market price sell for a sum of silver currency, which, if imported and carried to our mint to be coined, will produce in our standard silver coin 21s. 5d.*

  It is nevertheless true, that the 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?1

  It is said,2 that, if the Restriction-bill were not in force, every guinea would leave the country.*

  This is, no doubt, true; but if the Bank were to diminish the quantity of their notes until they had increased their value fifteen per cent., the restriction might be safely removed, as there would then be no temptation to export specie. However long it may be deferred, however great may be the discount on their notes, the Bank can never resume their payments in specie, until they first reduce the amount of their notes in circulation to these limits.

  The law is allowed by all writers on political economy to be a useless barrier against the exportation of guineas: it is so easily evaded, that it is doubted whether it has had the effect of keeping a single guinea more in England than there would have been without such law. Mr. Locke, Sir J. Stuart, Dr. A. Smith, Lord Liverpool, and Mr. Thornton, all agree on this subject. The latter gentleman observes,3 “That the state of the British law unquestionably serves to discourage and limit, though not effectually to hinder, that exportation of guineas which is encouraged by an unfavourable balance of trade, and perhaps scarcely lessens it when the profit on exportation becomes very great.” Yet after every guinea that can in the present state of things be procured by the illicit trader has been melted and exported, he will hesitate before he openly buys guineas with bank-notes at a premium, because, though considerable profit may attend such speculation, he will thereby render himself an object of suspicion. He may be watched, and prevented from effecting his object. As the penalties of the law are severe, and the temptation to informers great, secrecy is essential to his operations. When guineas can be procured by merely sending a bank-note for them to the Bank, the law will be easily evaded; but when it is necessary to collect them openly and from a widely diffused circulation, consisting almost wholly of paper, the advantage attending it must be very considerable before any one will encounter the risk of being detected.

  When we reflect that above sixty millions sterling have been coined into guineas during his present Majesty’s reign, we may form some idea of the extent to which the exportation of gold must have been carried.—But repeal the law against the exportation of guineas, permit them to be openly sent out of the country, and what can prevent an ounce of standard gold in guineas from selling at as good a price for bank-notes, as an ounce of Portugueze gold coin, or standard gold in bars, when it is known to be equal to them in fineness? And if an ounce of standard gold in guineas would sell in the market, as standard bars do now, at 4l. 10s. per oz., or as they have lately done at 4l. 13s. per oz., what shopkeeper would sell his goods at the same price either for gold or bank-notes indifferently?1 If the price of a coat were 3l. 17s. 10½d. or an ounce of gold, and if at the same time an ounce of gold would sell for 4l. 13s., is it conceivable that it would be a matter of indifference to the tailor whether he were paid in gold or in bank-notes?

  It is only because a guinea will not purchase more than a pound-note and a shilling, that many hesitate to allow that bank-notes are at a discount. The Edinburgh Review1 supports the same opinion; but if my reasoning be correct, I have shewn such objections to be groundless.

  Mr. Thornton has told us that an unfavourable trade will account for an unfavourable exchange; but we have already seen that an unfavourable trade, if such be an accurate term, is limited in its effects on the exchange. That limit is probably four or five per cent. This will not account for a depreciation of fifteen or twenty per cent. Moreover Mr. Thornton has told us,2 and I entirely agree with him, “That it may be laid down as a general truth, that the commercial exports and imports of a state naturally proportion themselves in some degree to each other, and that the balance of trade therefore cannot continue for a very long time to be either highly favourable or highly unfavourable to a country.” Now the low exchange, so far from being temporary, existed before Mr. Thornton wrote in 1802, and has since been progressively increasing, and is now from fifteen to twenty per cent. against us. Mr. Thornton must therefore, according to his own principles, attribute it to some more permanent cause than an unfavourable balance of trade, and will, I doubt not, whatever his opinion may formerly have been, now agree that it is to be accounted for only by the depreciation of the circulating medium.3

  It can, I think, no longer be disputed that bank-notes are at a discount. While the price of gold bullion is 4l. 10s. per oz., or in other words, while any man will consent to give that which professes to be an obligation to pay nearly an ounce, and a sixth of an ounce of gold, for an ounce, it cannot be contended that 4l. 10s. in notes and 4l. 10s. in gold coin are of the same value.

  An ounce of gold is coined into 3l. 17s. 10½d.; by possessing that sum therefore I have an ounce of gold, and would not give 4l. 10s. in gold coin, or notes which I could immediately exchange for 4l. 10s., for an ounce of gold.

  It is contrary to common sense to suppose that such could be the market value, unless the price were estimated in a depreciated medium.

  If the price of gold were estimated in silver indeed, the price might rise to 4l., 5l., or 10l. an ounce, and it would, of itself, be no proof of the depreciation of paper currency, but of an alteration in the relative value of gold and silver. I have, however, I think proved, that silver is not the standard measure of value, and therefore not the medium in which the value of gold is estimated. But if it were; as an ounce of gold is only worth in the market 15½oz. of silver, and as 15½ ounces of silver is precisely equal in weight, and is therefore coined into 80 shillings, an ounce of gold ought not to sell for more than 4l.

  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, can have raised its price above 4l. per 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 representative of silver coin, then an ounce of gold, selling as it now does for 4l. 10s. sells for an amount of notes which represent 17½ ounces of silver, whereas in the bullion market it can only be exchanged for 15½ ounces. Fifteen ounces and a half of silver bullion are therefore of equal value with an engagement of the Bank to pay to bearer seventeen ounces and a half.1

  The market price of silver is at the present time 5s. 9½d. per oz. estimated in bank-notes, the mint price being only 5s. 2d., consequently the standard silver in 100l. is worth more than 112l. in bank-notes.

  But bank-notes, it may be said, are the representatives of our debased silver coin, and not of our standard silver. This is not true, because the law which I have already quoted2 declares silver to be a legal tender for sums only not exceeding 25l. except by weight. If the Bank insisted on paying the holder of a bank-note of 1000l. in silver coin, they would be bound either to give him standard silver of full weight, or debased silver of an equal value, with the exception of 25l. which they might pay him in debased coin. But the 1000l. so consisting of 975l. pure money, and 25l. debased, is worth more than 1112l. at the present market value of silver bullion.

  It is said that the amount of bank-notes has not increased in a greater proportion than the augmentation of our trade required, and therefore cannot be excessive. This assertion would be difficult to prove, and if true, no argument but what is delusive could be founded on it. In the first place, the daily improvements which we are making in the art of economizing the use of circulating medium, by improved methods of banking, would render the same amount of notes excessive now, which were necessary for the same state of commerce at a former period. Secondly, there is a constant competition between the Bank of England and the country-banks to establish their notes, to the exclusion of those of their rivals, in every district where the country banks are established.

  As the latter have more than doubled in number within very few years, is it not probable that their activity may have been crowned with success, in displacing with their own notes many of those of the Bank of England?

  If this have happened, the same amount of Bank of England notes would now be excessive; which, with a less extended commerce, was before barely sufficient to keep our currency on a level with that of other countries. No just conclusion can therefore be drawn from the actual amount of bank-notes in circulation, though the fact, if examined, would, I have no doubt, be found to be, that the increase in the amount of bank- notes, and the high price of gold, have usually accompanied each other.

  It is doubted, whether two or three millions of Bank-notes (the sum which the Bank is supposed to have added to the circulation, over and above the amount which it will easily bear,) could have had such effects as are ascribed to them; but it should be recollected, that the Bank regulate the amount of the circulation of all the country banks, and it is probable, that if the Bank increase their issues three millions, they enable the country banks to add more than three1 millions to the general circulation of England.

  The money of a particular country is divided amongst its different provinces by the same rules as the money of the world is divided amongst the different nations of which it is composed. Each district will retain in its circulation such a proportionate share of the currency of the country, as its trade, and consequently its payments, may require, compared to the trade of the whole; and no increase can take place in the circulating medium of one district, without being generally diffused, or calling forth a proportionable quantity in every other district. It is this which keeps a country bank note always of the same value as a Bank of England note. If in London, where Bank of England notes only are current, one million be added to the amount in circulation, the currency will become cheaper there than elsewhere, or goods will become dearer. Goods will, therefore, be sent from the country to the London market, to be sold at the high prices, or which is much more probable, the country banks will take advantage of the relative deficiency in the country currency, and increase the amount of their notes in the same proportion as the Bank of England had done; prices would then be generally, and not partially affected.

  In the same manner, if Bank of England notes be diminished one million, the comparative value of the currency of London will be increased, and the prices of goods diminished. A Bank of England note will then be more valuable than a country- bank note, because it will be wanted to purchase goods in the cheap market; and as the country banks are obliged to give Bank of England notes for their own when demanded, they would be called upon for them till the quantity of country paper should be reduced to the same proportion which it before bore to the London paper, producing a corresponding fall in the prices of all goods for which it was exchangeable.1

  The country banks could never increase the amount of their notes, unless to fill up a relative deficiency in the country currency, caused by the increased issues of the Bank of England* . If they attempted it, the same check which compelled2 the Bank of England to withdraw part of their notes from circulation when they used3 to pay them on demand in specie, would oblige the country banks to adopt the same course. Their notes would, on account of the increased quantity, be rendered of less value than the Bank of England notes, in the same manner as Bank of England notes were rendered of less value than the guineas which they represented. They would therefore be exchanged for Bank of England notes until they were of the same value.

  The Bank of England is the great regulator of the country paper. When they increase or decrease the amount of their notes, the country banks do the same; and in no case can country banks add to the general circulation, unless the Bank of England shall have previously increased the amount of their notes.

  It is contended,4 that the rate of interest, and not the price of gold or silver bullion, is the criterion by which we may always judge of the abundance of paper-money; that if it were too abundant, interest would fall, and if not sufficiently so, interest would rise. It can, I think, be made manifest, that the rate of interest is not regulated by the abundance or scarcity of money, but by the abundance or scarcity of that part of capital, not consisting of money.

  “Money,” observes Dr. A. Smith, “the great wheel of circulation, the great instrument of commerce, like all other instruments of trade, though it makes a part, and a very valuable part of the capital, makes no part of the revenue of the society to which it belongs; and though the metal pieces of which it is composed, in the course of their annual circulation, distribute to every man the revenue which properly belongs to him, they make themselves no part of that revenue.1

  “When we compute the quantity of industry which the circulating capital of any society can employ, we must always have regard to those parts of it only which consist in provisions, materials, and finished work: the other, which consists in money, and which serves only to circulate those three, must always be deducted. In order to put industry into motion, three things are requisite:—materials to work upon, tools to work with, and the wages or recompense for the sake of which the work is done. Money is neither a material to work upon, nor a tool to work with; and though the wages of the workman are commonly paid to him in money, his real revenue, like that of all other men, consists not in money, but in money’s worth;2 not in the metal pieces, but what can be got for them.”3

  And in other parts of his work,4 it is maintained, that the discovery of the mines in America, which so greatly increased the quantity of money, did not lessen the interest for the use of it: the rate of interest being regulated by the profits on the employment of capital, and not by the number or quality of the pieces of metal, which are used to circulate its produce.

  Mr. Hume has supported the same opinion.1 The value of the circulating medium of every country bears some proportion to the value of the commodities which it circulates. In some countries this proportion is much greater than in others, and varies, on some occasions, in the same country. It depends upon the rapidity of circulation, upon the degree of confidence and credit existing between traders, and above all, on the judicious operations of banking. In England so many means of economizing the use of circulating medium have been adopted, that its value, compared with the value of the commodities which it circulates, is probably (during a period of confidence* ) reduced to as small a proportion as is practicable. What that proportion may be has been variously estimated.

  No increase or decrease of its quantity, whether consisting of gold, silver, or paper-money, can increase or decrease its value above or below this proportion. If the mines cease to supply the annual consumption of the precious metals, money will become more valuable, and a smaller quantity will be employed as a circulating medium. The diminution in the quantity will be proportioned to the increase of its value. In like manner, if new mines be discovered, the value of the precious metals will be reduced, and an increased quantity used in the circulation; so that in either case the relative value of money, to the commodities which it circulates, will continue as before.

  If, whilst the Bank paid their notes on demand in specie, they were to increase their quantity, they would produce little permanent effect on the value of the currency, because nearly an equal quantity of the coin would be withdrawn from circulation and exported.

  If the Bank were restricted from paying their notes in specie, and all the coin had been exported, any excess of their notes would depreciate the value of the circulating medium in proportion to the excess. If twenty millions had been the circulation of England before the restriction, and four millions were added to it, the twenty-four millions would be of no more value than the twenty were before, provided commodities had remained the same, and there had been no corresponding exportation of coins; and if the Bank were successively to increase it to fifty, or a hundred millions, the increased quantity would be all absorbed in the circulation of England, but would be, in all cases, depreciated to the value of the twenty millions.

  I do not dispute, that if the Bank were to bring a large additional sum of notes into the market, and offer them on loan, but that they would for a time affect the rate of interest. The same effects would follow from the discovery of a hidden treasure of gold or silver coin. If the amount were large, the Bank, or the owner of the treasure, might not be able to lend the notes or the money at four, nor perhaps, above three per cent.; but having done so, neither the notes, nor the money, would be retained unemployed by the borrowers; they would be sent into every market, and would every where raise the prices of commodities, till they were absorbed in the general circulation. It is only during the interval of the issues of the Bank, and their effect on prices, that we should be sensible of an abundance of money; interest would, during that interval, be under its natural level; but as soon as the additional sum of notes or of money became absorbed in the general circulation, the rate of interest would be as high, and new loans would be demanded with as much eagerness as before the additional issues.

  The circulation can never be over-full. If it be one of gold and silver, any increase in its quantity will be spread over the world. If it be one of paper, it will diffuse itself only in the country where it is issued. Its effects on prices will then be only local and nominal, as a compensation by means of the exchange will be made to foreign purchasers.

  To suppose that any increased issues of the Bank can have the effect of permanently1 lowering the rate of interest, and satisfying the demands of all borrowers, so that there will be none to apply for new loans, or that a productive gold or silver mine can have such an effect, is to attribute a power to the circulating medium which it can never possess. Banks would, if this were possible, become powerful engines indeed. By creating paper money, and lending it at three or two per cent. under the present market rate of interest, the Bank would reduce the profits on trade in the same proportion; and if they were sufficiently patriotic to lend their notes at an interest no higher than necessary to pay the expences of their establishment, profits would be still further reduced; no nation, but by similar means, could enter into competition with us, we should engross the trade of the world. To what absurdities would not such a theory lead us! Profits can only be lowered by a competition of capitals not consisting of circulating medium. As the increase of Bank-notes does not add to this species of capital, as it neither increases our exportable commodities, our machinery, or our raw materials, it cannot add to our profits nor lower interest*

  When any one borrows money for the purpose of entering into trade, he borrows it as a medium by which he can possess himself of “materials, provisions, &c.” to carry on that trade; and it can be of little consequence to him, provided he obtain the quantity of materials, &c. necessary, whether he be obliged to borrow a thousand, or ten thousand pieces of money. If he borrow ten thousand, the produce of his manufacture will be ten times the nominal value of what it would have been, had one thousand been sufficient for the same purpose. The capital actually employed in the country is necessarily limited to the amount of the “materials, provisions, &c.” and might be made equally productive, though not with equal facility, if trade were carried on wholly by barter. The successive possessors of the circulating medium have the command over this capital: but however abundant may be the quantity of money or of bank-notes; though it may increase the nominal prices of commodities; though it may distribute the productive capital in different proportions; though the Bank, by increasing the quantity of their1 notes, may enable A to carry on part of the business formerly engrossed by B and C, nothing will be added to the real revenue and wealth of the country. B and C may be injured, and A and the Bank may be gainers, but they will gain exactly what B and C lose. There will be a violent and an unjust transfer of property, but no benefit whatever will be gained by the community.

  For these reasons I am of opinion that the funds are not indebted for their high price to the depreciation of our currency. Their price must be regulated by the general rate of interest given for money. If before the depreciation I gave thirty years’ purchase for land, and twenty-five for an annuity in the stocks, I can after the depreciation give a larger sum for the purchase of land, without giving more years’ purchase, because the produce of the land will sell for a greater nominal value in consequence of the depreciation; but as the annuity in the funds is paid in the depreciated medium, there can be no reason why I should give a greater nominal value for it after than before the depreciation.

  If guineas were degraded by clipping to half their present value, every commodity as well as land would rise to double its present nominal value; but as the interest of the stocks would be paid in the degraded guineas, they would, on that account, experience no rise.

  The remedy which I propose for all the evils in our currency, is that the Bank should gradually decrease the amount of their notes in circulation until they shall have rendered the remainder of equal value with the coins which they represent, or, in other words, till the prices of gold and silver bullion shall be brought down to their mint price. I am well aware that the total failure of paper credit would be attended with the most disastrous consequences to the trade and commerce of the country, and even its sudden limitation would occasion so much ruin and distress, that it would be highly inexpedient to have recourse to it as the means of restoring our currency to its just and equitable value.

  If the Bank were possessed of more guineas than they had notes in circulation, they could not, without great injury to the country, pay their notes in specie, while the price of gold bullion continued greatly above the mint price, and the foreign exchanges unfavorable to us. The excess of our currency would be exchanged for guineas at the Bank and exported, and would be suddenly withdrawn from circulation. Before therefore they can safely pay in specie, the excess of notes must be gradually withdrawn from circulation. If gradually done, little inconvenience would be felt; so that the principle were fairly admitted, it would be for future consideration whether the object should be accomplished in one year or in five. I am fully persuaded that we shall never restore our currency to its equitable state, but by this preliminary step, or by the total overthrow of our paper credit.

  If the Bank directors had kept the amount of their notes within reasonable bounds; if they had acted up to the principle which they have avowed to have been that which regulated their issues when they were obliged to pay their notes in specie, namely, to limit their notes to that amount which should prevent the excess of the market above the mint price of gold, we should not have been now exposed to all the evils of a depreciated, and perpetually varying currency.

  Though the Bank derive considerable advantage from the present system, though the price of their capital stock has nearly doubled1 since 1797, and their dividends have proportionally increased, I am ready to admit with Mr. Thornton,2 that the directors, as monied men, sustain losses in common with others by a depreciation of the currency, much more serious to them than any advantages which they may reap from it as proprietors of Bank stock.3 I do therefore acquit them of being influenced by interested motives, but their mistakes, if they are such, are in their effects quite as pernicious to the community.

  The extraordinary powers with which they are entrusted enable them to regulate at their pleasure the price at which those who are possessed of a particular kind of property, called money, shall dispose of it. The Bank directors have imposed upon these holders of money all the evils of a maximum. To-day it is their pleasure that 4l. 10s. shall pass for 3l. 17s. 10½d., to-morrow they may degrade 4l. 15s. to the same value, and in another year 10l. may not be worth more. By what an insecure tenure is property consisting of money or annuities paid in money held! What security has the public creditor that the interest on the public debt, which is now paid in a medium depreciated fifteen per cent., may not hereafter be paid in one degraded fifty per cent.? The injury to private creditors is not less serious. A debt contracted in 1797 may now be paid with eighty-five per cent. of its amount, and who shall say that the depreciation will go no further?

  The following observations of Dr. Smith on this subject are so important, that I cannot but recommend them to the serious attention of all thinking men.

  “The raising the denomination of the coin has been the most usual expedient by which a real public bankruptcy has been disguised under the appearance of a pretended payment. If a sixpence, for example, should either by act of parliament or royal proclamation be raised to the denomination of a shilling, and twenty sixpences to that of a pound sterling, the person who under the old denomination had borrowed twenty shillings, or near four ounces of silver, would, under the new, pay with twenty sixpences, or with something less than two ounces. A national debt of about a hundred and twenty1 millions, nearly the capital of the funded2 debt of Great Britain, might in this manner be paid with about sixty-four millions of our present money. It would indeed be a pretended payment only, and the creditors of the public would3 be defrauded of ten shillings in the pound of what was due to them. The calamity too would extend much further than to the creditors of the public, and those of every private person would suffer a proportionable loss; and this without any advantage, but in most cases with a great additional loss, to the creditors of the public. If the creditors of the public indeed were generally much in debt to other people, they might in some measure compensate their loss by paying their creditors in the same coin in which the public had paid them. But in most countries the creditors of the public are the greater part of them wealthy people, who stand more in the relation of creditors than in that of debtors towards the rest of their fellow-citizens. A pretended payment of this kind, therefore, instead of alleviating, aggravates in most cases the loss of the creditors of the public; and without any advantage to the public, extends the calamity to a great number of other innocent people. It occasions a general and most pernicious subversion of the fortunes of private people; enriching in most cases the idle and profuse debtor at the expense of the industrious and frugal creditor, and transporting a great part of the national capital from the hands which are likely to increase and improve it, to those which are likely to dissipate and destroy it. When it becomes necessary for a state to declare itself bankrupt, in the same manner as when it becomes necessary for an individual to do so, a fair, open, and avowed bankruptcy is always the measure which is both least dishonourable to the debtor, and least hurtful to the creditor. The honour of a state is surely very poorly provided for, when in order to cover the disgrace of a real bankruptcy, it has recourse to a juggling trick of this kind, so easily seen through, and at the same time so extremely pernicious.”1

  These observations of Dr. Smith on a debased money are equally applicable to a depreciated paper currency. He has enumerated but a few of the disastrous consequences which attend the debasement of the circulating medium, but he has sufficiently warned us against trying such dangerous experiments. It will be a circumstance ever to be lamented, if this great country, having before its eyes the consequences of a forced paper circulation in America and France, should persevere in a system pregnant with so much disaster. Let us hope that she will be more wise. It is said indeed that the cases are dissimilar: that the Bank of England is independent of government. If this were true, the evils of a superabundant circulation would not be less felt; but it may be questioned whether a Bank lending many millions more to government than its capital and savings can be called independent of that government.

  When the order of council for suspending the cash payments became necessary in 1797, the run upon the Bank was, in my opinion, caused by political alarm alone, and not by a super- abundant, or a deficient quantity (as some have supposed) of their notes in circulation* .

  This is a danger to which the Bank, from the nature of its institution, is at all times liable. No prudence on the part of the directors could perhaps have averted it: but if their loans to government had been more limited; if the same amount of notes had been issued to the public through the medium of discounts; they would have been able, in all probability, to have continued their payments till the alarm had subsided. At any rate, as the debtors to the Bank would have been obliged to discharge their debts in the space of sixty days, that being the longest period for which any bill discounted by the Bank has to run, the directors would in that time, if necessary, have been enabled to redeem every note in circulation. It was then owing to the too intimate connection between the Bank and government that the restriction became necessary; it is to that cause too that we owe its continuance.

  To prevent the evil consequences which may attend the perseverance in this system, we must keep our eyes steadily fixed on the repeal of the Restriction-bill.

  The only legitimate security which the public can possess against the indiscretion of the Bank is to oblige them to pay their notes on demand in specie; and this can only be effected by diminishing the amount of bank-notes in circulation till the nominal price of gold be lowered to the mint price.

  Here I will conclude; happy if my feeble efforts should awaken the public attention to a due consideration of the state of our circulating medium. I am well aware that I have not added to the stock of information with which the public has been enlightened by many able writers on the same important subject. I have had no such ambition. My aim has been to introduce a calm and dispassionate enquiry into a question of great importance to the state, and the neglect of which may be attended with consequences which every friend of his country would deplore.

  APPENDIX1

  The public having called for a new edition of this pamphlet, I avail myself of the occasion to consider the observations which the Edinburgh Reviewers, in the last number of their publication, have done me the honour to make on some of the passages contained in it.2 I am induced to do this from the conviction that discussion on every point connected with this important subject will hasten the remedy against the existing abuse, and will tend to secure us against the risk of its recurrence in future.

  In the article on the depreciation of money, the Reviewers observe, “The great fault of Mr. Ricardo’s performance is the partial view which he takes of the causes which operate upon the course of exchange. He attributes,” they say, “a favourable or an unfavourable exchange exclusively to a redundant or deficient currency, and overlooks the varying desires and wants of different societies, as an original cause of a temporary excess of imports above exports, or exports above imports.”1 They then comment on the passage in which I have maintained, that a bad harvest will not occasion the export of money, unless money is relatively cheap in the exporting country,2 and conclude their observations by giving it as their decided opinion, that the exportation of money in the supposed case of a bad harvest, “is not occasioned by its cheapness. It is not, as Mr. Ricardo endeavours to persuade us, the cause of the unfavourable balance, instead of the effect. It is not merely a salutary remedy for a redundant currency: but it is owing precisely to the cause mentioned by Mr. Thornton—the unwillingness of the creditor nation to receive a great additional quantity of goods not wanted for immediate consumption, without being bribed to it by excessive cheapness; and its willingness to receive bullion—the currency of the commercial world—without any such bribe. It is unquestionably true, as stated by Mr. Ricardo, that no nation will pay a debt in the precious metals, if it can do it cheaper by commodities; but the prices of commodities are liable to great depressions from a glut in the market; whereas the precious metals, on account of their having been constituted by the universal consent of society, the general medium of exchange, and instrument of commerce, will pay a debt of the largest amount at its nominal estimation, according to the quantity of bullion contained in the respective currencies of the countries in question, and, whatever variations between the quantity of currency and commodities may be stated to take place subsequent to the commencement of these transactions, it cannot be for a moment doubted that the cause of them is to be found in the wants and desires of one of the two nations, and not in any original redundancy or deficiency of currency in either of them.”1

  They agree with me, “that no nation will pay a debt in the precious metals, if it can do it cheaper by commodities, but the prices of commodities,” they say, “are liable to great depressions from a glut in the market;” of course they must mean in the foreign market, and then the words express the opinion which they are endeavouring to controvert, viz. that when goods cannot be sent out so advantageously as money, money will be exported,—which is another way of saying that money will never be exported, unless it is relatively redundant with commodities, as compared with other countries. Yet immediately after2 they contend, that the exportation of the “precious metals is the effect of a balance of trade* , originating in causes which may exist without any relation whatever to redundancy or deficiency of currency.” These opinions appear to me directly contradictory. If however the precious metals can be exported from a country in exchange for commodities, although they should be as dear in the exporting as in the importing country, what are the effects which will follow from such improvident exportation?

  “A comparative deficiency in one country, and redundancy in the other,” say the Reviewers, p. 343.1 “and this state of things could not fail to have a speedy effect in changing the direction of the balance of payments, and in restoring that equilibrium of the precious metals, which had been for a time disturbed by the naturally unequal wants and necessities of the countries which trade with each other.” Now it would have been well if the Reviewers had told us at what point this re-action would commence,—as at the first view it appears that the same law which will permit money to be exported from a country, when it is no cheaper than in the importing country, may also allow it to be exported when it is actually dearer. It is self-interest which regulates all the speculations of trade, and where that can be clearly and satisfactorily ascertained, we should not know where to stop if we admitted any other rule of action. They should have explained to us therefore, why, if the demand for the commodity imported should continue, the country importing might not be entirely exhausted of its coin and bullion. What is under such circumstances to check the exportation of the currency? The Reviewers say, because “a country with a diminished quantity of bullion would evidently soon be limited in its powers of paying with the precious metals.”2 Why soon? Is it not admitted “that excess and deficiency of currency are only relative terms; that the circulation of a country can never be superabundant,” (and therefore can never be deficient,) “except in relation to other countries.”3 Does it not follow from these admissions, that if the balance of trade may become unfavourable to a country, though its currency be not relatively superabundant, that there is no check against the exportation of its coin, whilst any amount of money remains in circulation; as the diminished sum, (by acquiring a new value,) will as readily and as effectually make the required payments as the larger sum did before? A succession of bad harvests might, on this principle, drain a country of its money, whatever might be its amount, although it consisted exclusively of the precious metals. The observation that its diminished value in the importing country, and its increasing value in the exporting country, would make it revert again to the old channel, does not answer the objection. When will this happen? and in exchange for what will it be returned? The answer is obvious—for commodities. The ultimate result then of all this exportation and importation of money, is that one country will have imported one commodity in exchange for another, and the coin and bullion will in both countries have regained their natural level. Is it to be contended that these results would not be foreseen, and the expence and trouble attending these needless operations effectually prevented, in a country where capital is abundant, where every possible economy in trade is practised, and where competition is pushed to its utmost limits? Is it conceivable that money should be sent abroad for the purpose merely of rendering it dear in this country and cheap in another, and by such means to ensure its return to us?

  It is particularly worthy of observation that so deep-rooted is the prejudice which considers coin and bullion as things essentially differing in all their operations from other commodities, that writers greatly enlightened upon the general truth of political economy seldom fail, after having requested their readers to consider money and bullion merely as commodities subject to “the same general principle of supply and demand which are unquestionably the foundation on which the whole superstructure of political economy is built;”1 to forget this recommendation themselves, and to argue upon the subject of money, and the laws which regulate its export and import, as quite distinct and different from those which regulate the export and import of other commodities. Thus the Reviewers, if they had been speaking of coffee or of sugar, would have denied the possibility of those articles being exported from England to the continent, unless they were dearer there than here. It would have been in vain to have urged to them, that our harvest had been bad, and that we were in want of corn; they would confidently and undeniably have proved that to whatever degree the scarcity of corn might have existed, it would not have been possible for England to send, or for France (for example) to be willing to receive, coffee or sugar in return for corn, whilst coffee or sugar cost more money in England than in France. What! they would have said, do you believe it possible for us to send a parcel of coffee to France to sell there for 100l. when that coffee cost here 105l.—when by sending 100l. of the 105l. we should equally discharge the debt contracted for the imported corn? And, I say, do you believe it possible that we shall agree to send, or France agree to receive (if the transaction is on her account) 100l. in money, when 95l. invested in coffee and exported will be equally valuable as the 100l. when it arrives in France? But coffee is not wanted in France, there is a glut of it;—allowed, but money is wanted still less, and the proof is, that a hundred pounds worth of coffee will sell for more than a hundred pounds worth of money. The only proof which we can possess of the relative cheapness of money in two places, is by comparing it with commodities. Commodities measure the value of money in the same manner as money measures the value of commodities. If then commodities will purchase more money in England than in France, we may justly say that money is cheaper in England, and that it is exported to find its level, not to destroy it. After comparing the relative value of coffee, sugar, ivory, indigo, and all other exportable commodities in the two markets, if I persist in sending money, what further proof can be required of money being actually the cheapest of all these commodities in the English market, in relation to the foreign markets, and therefore the most profitable to be exported? What further evidence is necessary of the relative redundance and cheapness of money between France and England, than that in France it will purchase more corn, more indigo, more coffee, more sugar, more of every exportable commodity than in England?

  I may, indeed, be told that the Reviewer’s supposition is not that coffee, sugar, indigo, ivory, &c. &c. are cheaper than money, but that these commodities and money are equally cheap in both countries, that is to say, that one hundred pounds sent in money, or invested in coffee, sugar, indigo, ivory, &c. &c. will be of equal value in France. If the value of all these commodities were so nicely poised, what would determine an exporter to send the one in preference to the other, in exchange for corn; in relation to which they are all cheaper in England? If he sends money, and thereby destroys the natural level, we are told by the Reviewers that money would on account of its increasing quantity in France, and its decreasing quantity in England, become cheaper in France than in England, and would be re-imported in exchange for goods till the level were restored. But would not the same effects take place if coffee or any of the other commodities were exported, whilst they were equally valuable in relation to money in both countries? Would not the equilibrium between supply and demand be destroyed, and would not the diminished value of coffee, &c. in consequence of their increased quantity in France, and their increased value in England, from their diminished quantity, produce their re-importation into England? Any of these commodities might be exported without producing much inconvenience from their enhanced price; whereas money, which circulates all other commodities, and the increase or diminution of which, even in a moderate proportion, raises or falls prices in an extravagant degree, could not be exported without the most serious consequences. Here then we see the defective principle of the Reviewers. On my system, however, there would be no difficulty in determining the mode in which, in a case so extremely improbable, as that of an equal value in both countries, for all commodities, money included, and corn alone excepted, the returns would be made so as to preserve the relative amount and the relative value of their respective currencies.

  If the circulating medium of England consisted wholly of the precious metals, and were a fiftieth part of the value of the commodities which it circulated, the whole amount of money which would under the circumstances supposed be exported in exchange for corn, would be a fiftieth part of the value of such corn: for the rest we should export commodities, and thus would the proportion between money and commodities be equally preserved in both countries. England, in consequence of a bad harvest, would come under the case mentioned at page [53] of this work, of a country having been deprived of a part of its commodities, and therefore requiring a diminished amount of circulating medium. The currency which was before equal to her payments would now become superabundant and relatively cheap, in the proportion of one fiftieth part of her diminished production; the exportation of this sum, therefore, would restore the value of her currency to the value of the currencies of other countries. Thus it appears to be satisfactorily proved that a bad harvest operates on the exchange in no other way than by causing the currency which was before at its just level to become redundant, and thus is the principle that an unfavourable exchange may always be traced to a relatively redundant currency most fully exemplified.

  If we can suppose that after an unfavourable harvest, when England has occasion for an unusual importation of corn, another nation is possessed of a superabundance of that article, “but has no wants for any commodity whatever,” it would unquestionably follow that such nation would not export its corn in exchange for commodities: but neither would it export corn for money, as that is a commodity which no nation ever wants absolutely, but relatively, as is expressly admitted by the Reviewers. The case is, however, impossible, because a nation possessed of every commodity necessary for the consumption and enjoyment of all its inhabitants who have wherewithal to purchase them, will not let the corn which it has over and above what it can consume rot in its granaries. Whilst the desire of accumulation is not extinguished in the breast of man, he will be desirous to realise the excess of his productions, above his own consumption, into the form of capital. This he can only do by employing, himself, or by loans to others, enabling them to employ, an additional number of labourers, as it is by labour only that revenue is realized into capital. If his revenue be corn, he will be disposed to exchange it for fuel, meat, butter, cheese, and other commodities in which the wages of labour are usually expended, or, which is the same thing, he will sell his corn for money, pay the wages of his labourers in money, and thereby create a demand for those commodities which may be obtained from other countries in exchange for the superfluous corn. Thus will be reproduced to him articles more valuable, which he may again employ in the same manner, adding to his own riches, and augmenting the wealth and resources of his country.

  No mistake can be greater than to suppose that a nation can ever be without wants for commodities of some sort. It may possess too much of one or more commodities for which it may not find a market at home. It may have more sugar, coffee, tallow, than it can either consume or dispose of, but no country ever possessed a general glut of all commodities. It is evidently impossible. If a country possesses every thing necessary for the maintenance and comfort of man, and these articles be divided in the proportions in which they are usually consumed, they are sure, however abundant, to find a market to take them off. It follows therefore, that whilst a country is in possession of a commodity for which there is no demand at home, it will be desirous of exchanging it for other commodities in the proportion in which they are consumed.

  No nation grows corn, or any other commodity, with a view to realise its value in money, (the case supposed, or involved in the case supposed, by the Reviewers), as this would be the most unprofitable object to which the labour of man could be devoted. Money is precisely that article which till it is re-exchanged never adds to the wealth of a country: accordingly we find, that to increase its amount is never the voluntary act of any country any more than it is that of any individual. Money is forced upon them only in consequence of the relatively less value which it possesses in those countries with which they have intercourse.

  Whilst a country employs the precious metals for money, and has no mines of its own, it is a conceivable case that it may greatly augment the amount of the productions of its land and labour without adding to its wealth, because at the same time those countries which are in possession of the mines may possibly have obtained so enormous a supply of the precious metals as to have forced an increase of currency on the industrious country, equal in value to the whole of its increased productions. But by so doing the augmented currency, added to that which was before employed, will be of no more real value than the original amount of currency. Thus then will this industrious nation become tributary to those nations which are in possession of the mines, and will carry on a trade in which it gains nothing and loses every thing.

  That the exchange is in a constant state of fluctuation with all countries I am not disposed to deny, but it does not generally vary to those limits at which remittances can be more advantageously made by means of bullion than by the purchase of bills. Whilst this is the case, it cannot be disputed that imports are balanced by exports. The varying demands of all countries may be supplied, and the exchanges of all deviate in some degree from par, if the currency of any one of them is either redundant or deficient, as compared with the rest. Suppose England to send goods to Holland, and not to find there any commodities which suit the English market; or, which is the same thing, suppose that we can purchase those commodities cheaper in France. In this case we confine our operation to the sale of goods in Holland, and the purchase of other goods in France. The currency of England is not disturbed by either transaction, as we shall pay France by a bill on Holland, and there will neither be an excess of imports nor of exports. The exchange may, however, be favourable to us with Holland, and unfavourable with France; and will be so, if the account be not balanced by the importation into France of goods from Holland, or from some country indebted to Holland. If there be no such importation, it can arise only from a relative redundancy of the circulation of Holland, as compared with that of France, and in payment of the bill it will suit both those countries that bullion should be transmitted. If the balance be settled by the transmission of goods, the exchange between all the three countries will be at par. If by bullion, the exchange between Holland and England will be as much above par, as that between France and England will be below the par, and the difference will be equal to the expenses attending the passage of bullion from Holland to France. It will make no difference in the result, if every nation of the world were concerned in the transaction. England having bought goods from France and sold goods to Holland, France might have purchased to the same amount from Italy; Italy may have done the same from Russia, Russia from Germany, and Germany within 100,000l. of the same amount from Holland; Germany might require this amount of bullion either to supply a deficient currency, or for the fabrication of plate. All these various transactions would be settled by bills of exchange, with the exception of the 100,000l. which would be either transmitted from an existing redundancy of coin or bullion in Holland, or it would be collected by Holland from the different currencies of Europe. It is not contended, as the Reviewers infer, “that a bad harvest, or the necessity of paying a subsidy in one country, should be immediately and invariably accompanied by an unusual demand for muslins, hardware, and colonial produce,” as the same effects would be produced if the country paying the subsidy, or suffering from a bad harvest, were to import less of other commodities than it had before been accustomed to do.

  The Reviewers observe, page 345, “The same kind of error which we have here noticed pervades other parts of Mr. Ricardo’s pamphlet, particularly the opening of his subject. He seems to think that when once the precious metals have been divided among the different countries of the earth, according to their relative wealth and commerce, that each having an equal necessity for the quantity actually in use, no temptation would be offered for their importation or exportation, till either a new mine or a new bank was opened; or till some marked change had taken place in their relative prosperity.” And afterwards at page 361, “We have already adverted to the error (confined, however, principally to Mr. Ricardo, and from which the Report is entirely free) of denying the existence of a balance of trade or of payments not connected with some original redundancy or deficiency of currency.” “But there is another point in which almost all the writers on this side of the question concur, where, notwithstanding, we cannot agree with them, and feel more inclined to the mercantile view of the subject. Though they acknowledge that bullion occasionally passes from one country to another from causes connected with the exchange, yet they represent these transactions as quite inconsiderable in degree. Mr. Huskisson observes1 ‘that the operations in the trade of bullion originate almost entirely in the fresh supplies which are yearly poured in from the mines of the New World, and are chiefly confined to the distribution of those supplies through the different parts of Europe. If this supply were to cease altogether, the dealings in gold and silver, as objects of foreign trade, would be very few, and those of short duration.’”

  “Mr. Ricardo, in his reply to Mr. Bosanquet, refers2 to this passage with particular approbation.” Now I am at a loss to discover in what this opinion of Mr. Huskisson differs from that which I had before given, and on which the Reviewers had been commenting.

  The passages are in substance precisely the same, and must stand or fall together. If “we acknowledge that bullion occasionally passes from one country to another, from causes connected with the exchange,” we do not acknowledge that it would so pass till the exchange had fallen to such limits as would make the exportation of bullion profitable, and I am of opinion that if it should so fall, it is in consequence of the cheapness and redundance of currency, which “would originate almost entirely in the fresh supplies which are yearly poured in from the mines of the New World.” This, then, is not another point in which the Reviewers differ with me, but the same.

  If “it is well known that most states, in their usual relations of commercial intercourse, have an almost constantly favourable exchange with some countries, and an almost constantly unfavourable one with the others,”1 to what cause can it be ascribed but to that mentioned by Mr. Huskisson? “The fresh supplies of bullion which are yearly poured in, (and in nearly the same direction) from the mines of the New World.” Dr. A. Smith does not seem to have been sufficiently aware of the powerful and uniform effects which this stream of bullion had on the foreign exchanges, and he was inclined much to overrate the uses of bullion in carrying on the various roundabout foreign trades which a country finds it necessary to engage in.2 In the early and rude transactions of commerce between nations, as in the early and rude transactions between individuals, there is little economy in the use of money and bullion; it is only in consequence of civilization and refinement that paper is made to perform the same office between the commonwealth of nations, as it so advantageously performs between individuals of the same country. The Reviewers do not appear to me to be sufficiently aware of the extent to which the principle of economy in the use of the precious metals is extended between nations, indeed they do not seem to acknowledge its force even when confined to a single nation, as from a passage in page 346, their readers would be induced to suppose their opinion to be, that there are frequent transfers of currency between the distant provinces of the same country, for they tell us that “there have been and ever will be a quantity of the precious metals in use destined to perform the same part with regard to the different nations connected with each other by commerce, which the currency of a particular country performs with regard to its distant provinces.” Now what part does the currency of a country perform with regard to the distant provinces?

  I am well persuaded that in all the multiplicity of commercial transactions which take place between the distant provinces of this kingdom, the currency performs a very inferior part, imports being almost always balanced by exports* , and the proof is, that the local currency of the provinces (and they have no other) is seldom circulated at any considerable distance from the place where it is issued.

  It appears to me that the Reviewers were induced to admit the erroneous doctrine of the merchants, that money might be exported in exchange for commodities, although money were no cheaper in the exporting country, because they could in no other way account for the rise of the exchange having, on some occasions, accompanied the increased amount of Bank notes, as stated by Mr. Pearse, the late deputy-governor and now governor of the Bank, in a paper delivered by him to the Bullion Committee.1 They say, “according to this view2 of the subject, it certainly is not easy to explain an improving exchange under an obviously increasing issue of notes: an event that not unfrequently happens, and was much insisted upon by the deputy-governor of the Bank, as a proof that our foreign exchanges had no connexion with the state of our currency.”1

  These are circumstances, however, which are not absolutely irreconcileable. Mr. Pearse, as well as the Edinburgh Reviewer, appears to have wholly mistaken the principle advanced by those who are desirous of the repeal of the restriction bill. They do not contend, as they are understood to do, that the increase of bank notes will permanently lower the exchange, but that such an effect will proceed from a redundant currency. It remains, therefore, to be considered whether an increase of bank notes is necessarily, at all times, accompanied with a permanently increased currency, as if I can make it appear that it is not, there will be no difficulty in accounting for a rise in the exchange, with an increased amount of bank-notes.

  It will be readily admitted, that whilst there is any great portion of coin in circulation, every increase of bank-notes, though it will for a short time lower the value of the whole currency, paper as well as gold, yet that such depression will not be permanent, because the redundant and cheap currency will lower the exchange and will occasion the exportation of a portion of the coin, which will cease as soon as the remainder of the currency shall have regained its value, and restored the exchange to par. The increase of small notes, then, will ultimately be a substitution of one currency for another, of a paper for a metallic currency, and will not operate in the same way as an actual and permanent increase of circulation* . We are not, however, without a criterion by which we may determine the relative amount of currency at different periods, as distinguished from bank-notes, on which though we cannot infallibly rely, it will probably be a sufficiently accurate test to determine the question which we are now discussing. This criterion is the amount of notes of 5l. and upwards in circulation, which we may reasonably calculate always bear some tolerably regular proportion to the whole circulation. Thus, if since 1797 the bank-notes of this description have increased from twelve to sixteen millions, we may infer that the whole circulation has increased one-third, if the districts in which bank-notes circulate have neither been enlarged nor contracted. The notes under 5l. will be issued in proportion as the metallic currency is withdrawn from circulation, and will be further augmented, if there be also an augmentation of notes of a higher denomination.

  If I am correct in this view of the subject, that the increase in the amount of our currency is to be inferred from the increased amount of bank-notes of 5l. and upwards, and can by no means be proved by an increase of 1l. and 2l. notes which have been substituted in the place of the exported or hoarded guineas, I must wholly reject the calculations of Mr. Pearse, because they are made on the supposition that every increase of this description of notes is an increase of currency to that amount. When it is considered that in 1797 there were no notes of 1l. and 2l. in circulation, but that their place was wholly filled with guineas; and that since that period there have been no less than seven millions issued, partly to supply the place of our exported and hoarded guineas, and partly to keep up the proportion between the circulation for the larger and for the smaller payments, we shall observe to what errors such reasoning may lead. I can consider the paper in question of no authority whatever as opposed to the opinion which I have ventured to give, namely, that an unfavourable balance of trade, and a consequently low exchange, may in all cases be traced to a relatively redundant and cheap currency* . But if the reasoning of Mr. Pearse were not incorrect as his facts are, he is no way warranted in the conclusions which he has drawn from them.

  Mr. Pearse states the increase of bank-notes from January, 1808, to Christmas, 1809, to have been from 17½ to 18 millions, or 500,000l., the exchange with Hamburgh during the same period having fallen from 34s. 9g. to 28s. 6g. an increase in the amount of notes of less than three per cent, and a fall in the exchange of more than eighteen per cent.

  But from whence did Mr. Pearse obtain this information, of 18 millions of bank-notes only being in circulation at Christmas in 1809? After looking at every return, with which I have been able to meet, of the amount of bank-notes in circulation at the end of 1809, I cannot but conclude that Mr. Pearse’s statement is incorrect. Mr. Mushet in his tables gives four returns of bank-notes in the year. In the last, for the year 1809, he has stated the amount of bank-notes in circulation

  at	19,742,998
  In the Appendix to the Bullion Report, and in returns lately made to the House of Commons, the amount of bank-notes in circulation appears to have been on December 12, 1809,	19,727,520
  On the 1st January, 1810	20,669,320
  On the 7th January, 1810,	19,528,030

  For many months previously to December it was not lower. When I first discovered this inaccuracy I thought Mr. Pearse might have omitted the bank post bills in both estimates, although they did not in December, 1809, exceed 880,880l.; but on looking at the return of bank-notes in circulation, including bank post bills, in January, 1808, I find Mr. Pearse has stated it larger than I can any where find it: indeed his estimate exceeds the return made by the Bank for the 1st of January, 1808, by nearly 900,000l., so that from the 1st of January, 1808, to the 12th of December, 1809, the increase was from 16,619,240 to 19,727,520, a difference of more than three millions, instead of 500,000, as stated by Mr. Pearse, and of two millions if Mr. Pearse’s statement for any time in January, 1808, be correct.

  Mr. Pearse’s statement too, that from January 1803, to the end of 1807, the amount of bank-notes had increased from 16 and a half to eighteen millions, an increase of a million and a half appears to me to exceed the fact by half a million. The increase of notes of 5l. and upwards, including bank post bills, did not, during that period, exceed 150,000l. It is material that these errors should be pointed out, that those who may, in spite of what I have urged, agree in principle with Mr. Pearse, may see that the facts of the case do not warrant the conclusions which that gentleman has drawn from them, and, indeed, that all calculations founded on the particular amount of bank- notes for a day, or for a week, when the general average has been for some time before, or some time after, greater or less, will be of little avail in overturning a theory which has every other proof of its truth. Such I consider the theory which asserts that the unlimited multiplication of a currency which is referrible to no fixed standard may and must produce a permanent depression of the exchange, estimated with a country whose currency is founded on such standard.

  Having considered the weight which ought to be attached to Mr. Pearse’s paper, I beg the reader’s attention to the table which I have drawn out from the statements in the Bullion Report, and from the papers which have since been presented to the House of Commons. I request him to compare the amount of the circulation of the larger notes with the variations in the exchange, and I trust he will find no difficulty in reconciling the principle maintained by me with the actual facts of the case, particularly if he considers that the operations of an increased currency are not instantaneous, but require some interval of time to produce their full effect,—that a rise or fall in the price of silver, as compared with gold, alters the relative value of the currencies of England and Hamburgh, and therefore makes the currency of one or other relatively redundant and cheap;—that the same effect is produced, as I have already stated, by an abundant or deficient harvest, either in this country or in those countries with which we trade, or by any other addition or diminution to their real wealth, which by altering the relative proportion between commodities and money alters the value of the circulating medium. With these corrections, I have no fear but that it will be found that Mr. Pearse’s objections may be refuted without having recourse to the abandonment of a principle, which, if yielded, will establish the mercantile theory of exchange, and may be made to account for a drain of circulating medium, so great, that it can only be counteracted by locking up our money in the bank, and absolving the directors from the obligation of paying their notes in specie.

  The average amount of bank notes from the year 1797 to 1809 inclusive, in the following table,1 is copied from the Report of the Bullion Committee.2 The rates of exchange are extracted from a list presented by the mint to parliament. There

  ^* Mr. Pearse’s statement, as presented to the Bullion Committee:

  * I have omitted as much of Mr Pearses paper as regarded the amount of bank notes in circulation before the restriction on bank payments, because whilst the public possessed the power of obtaining specie for their notes, the exchange could not but be momentarily lowered by the amount of the bank issues.
     Â	Total of Bank notes. Millions.	   Â	   Â	Rate of Hambro’ Exchange. s. g.
  27th February, 1797	8½	   Â	   Â	35 6
  Rose gradually in 1797 and 1798 to	13	   Â	   Â	38 0
  March, 1799	13½	   Â	   Â	37 7
  After this period, great commercial distress, large importation of corn, heavy sub-sidies, and the Hambro’ Exchange continued falling, and on the 2d January, 1801, was as low as	   Â	   Â	   Â	29 8
  Between the end of the year 1799 to the end of 1802, an increased quantity of 1l. and 2l. notes were issued, swelling the sum total of all notes to	13½ to 16½	Fluctuation	from	33 29 to 3 8
  From January, 1803, to the end of 1807	16½ to 18	Fluctuation	from	32 10 to 35 10
  From January, 1808, to Christmas 1809	17½ to 18	Fall	from	34 9 to 28 6

  The rate of the Hambro’ Exchange is taken from Lloyd’s list.

  have been three returns made to parliament by the Bank, of the amount of their notes in circulation in the year 1810; the first for the 7th and 12th of each month; the second a weekly return from the 19th January, 1810, to 28th December; and the third also a weekly account from the 3d March to 29th December,1810. The average amount of notes above 5l. including bank post bills, according to the first account is

  	£15,706,226	of notes under 5l.	£6,560,674
  Second	16,192,110		6,758,895
  Third	16,358,230		6,614,721
  	3)48,256,566		19,934,290
  General average	16,085,522		6,644,763

  In the years marked thus * the value of silver as compared with gold exceeded the mint valuation,—this was the case particularly in the year 1801, when less than 140z. of silver could purchase an ounce of gold,—the mint valuation is as 1 to 15•07; the present market value is as 1 to 16 nearly.

  “If,” say the Reviewers,1 “considerable portions of the currency were taken from the idle, and those who live upon fixed incomes,2 and transferred to farmers, manufacturers, and merchants,—the proportion between capital and revenue would be greatly altered to the advantage of capital; and in a short time the produce of the country would be greatly augmented.” It is no doubt true “that it is not the quantity” of circulating medium which adds to the national wealth, “but the different distribution of it.” If, therefore, we could be fully assured that the effects of the abundance, and the consequent depreciation of the currency, would diminish the powers of consumption in the idle and unproductive class, whilst it increased the number of the industrious and productive class, the effect would undoubtedly be to augment the national wealth, as it would

  Average amount of Bank of England Notes in circulation in each of the following years:

  	Notes of 5l. and upwards, including Bank Post Bills.	Notes under 5l.	Total.	Highest rate of Exchange with Hamburgh.	Lowest rate of Exchange with Hamburgh.
  1798	£11,527,250	£1,807,502	£13,334,752	38.2 Jan.	37.4 Dec.
  *1799	12,408,522	1,653,805	14,062,327	37.7 Jan.	31.6 Oct.
  *1800	13,598,666	2,243,266	15,841,932	32.5 May.	31.— Feb.
  *1801	13,454,367	2,715,182	16,169,594	31.8 Oct.	29.8 Jan.
  *1802	13,917,977	3,136,477	17,054,454	34.— Dec.	32.— Feb.
  1803	12,983,477	3,864,045	16,847,522	35.— Dec.	34.— Jan.
  1804	12,621,348	4,723,672	17,345,020	36.— June.	34.8 Feb.
  *1805	12,697,352	4,544,580	17,241,932	35.8 March.	32.9 Nov.
  *1806	12,844,170	4,291,230	17,135,400	34.8 Dec.	33.3 Jan.
  *1807	13,221,988	4,183,013	17,405,001	34.10 March.	34.2 Sept.
  *1808	13,402,160	4,132,420	17,534,580	35.3 July.	32.4 Dec.
  1809	14,133,615	4,868,275	19,001,890	31.3 Jan.	28.6 Nov.
  1810	16,085,522	6,644,763	22,730,285	31.2 June.	28.6 Dec.
  			26.6 Jan.	24.— March.
  The Bank have made a return of the amount of their notes for eighteen days in this present year 1811. The average amount of notes of 5l. and upwards in circulation for those eighteen days, in-cluding bank post bills, is					£16,286,950
  And of those under 5l					7,260,575
  					Total 23,547,525

  realize into capital that which was before expended as revenue. But the question is, will it so operate? Will not a thousand pounds saved by the stockholder from his income and lent to the farmer, be equally productive as if it had been saved by the farmer himself? The Reviewers observe,1 “On every fresh issue of notes, not only is the quantity of the circulating medium increased, but the distribution of the whole mass is altered. A large proportion falls into the hands of those who consume and produce, and a smaller proportion into the hands of those who only consume.” But is this necessarily so? They appear to take it for granted, that those who live on fixed incomes must consume the whole of their income, and that no part of it can be saved and annually added to capital. But this is very far from being the true state of the case, and I would ask, Do not the stockholders give as great a stimulus to the growth of the national wealth by saving half their incomes and investing it in the stocks, thereby liberating a capital which will ultimately be employed by those who consume and produce, as would be done if their incomes were depreciated 50 per cent. by the issues of bank-notes, and the power of saving were in consequence entirely taken from them, although the Bank should lend to an industrious man an amount of notes equal in value to the diminished income of the stockholder? The difference, and the only difference appears to me to be this, that in the one case the interest on the money lent would be paid to the real owner of the property, in the other it would ultimately be paid in the shape of increased dividends or bonuses to the bank proprietors, who had been enabled unjustly to possess themselves of it. If the creditor of the Bank employed his loan in less profitable speculations than the employer of the savings of the stockholders would have done, there would result a real loss to the country; so that a depreciation of currency may, as far as it is considered as a stimulus to production, be beneficial or otherwise.

  I see no reason why it should diminish the idle, and add to the productive class of society. At any rate the evil is certain. It must be accompanied with a degree of injustice to individuals which requires only to be understood to excite the censure and indignation of all those who are not wholly insensible to every honourable feeling.

  With the sentiments of the remainder of the article I most cordially agree, and trust the efforts of the Reviewers will powerfully contribute to overturn the mass of error and prejudice which pervades the public mind on this most important subject.

  It is often objected to the recommendation of the Bullion Committee, namely that the Bank should be required to pay their notes in specie in two years, that, if adopted, the Bank would be exposed to considerable difficulty in providing themselves with the requisite amount of bullion for such purpose; and it cannot be denied, that before the Restriction Bill can be repealed, the Bank would be in prudence bound to make ample provision for every demand which might by possibility be made on them. It is observed by the Bullion Committee, that the average amount of Bank notes in circulation, including Bank Post Bills, in the year 1809, was 19 millions. During the same period the average price of gold was 4l. 10s.—exceeding its mint price by nearly 17 per cent, and proving a depreciation of the currency of nearly 15 per cent. A diminution therefore of 15 per cent. in the amount of the Bank circulation in 1809, should, on the principles of the Committee, raise it to par, and reduce the market price of gold to 3l. 17s. 10½d.; and till such reduction take place, there would be imminent danger to the Bank as well as to the public, that the Restriction Bill should cease to operate. Now, admitting (which we are far from doing) the truth of your principles, say the advocates for the Bank, admitting that after such a reduction in the amount of Bank notes, the value of the remainder would be so raised, that it would not be the interest of any person to demand specie at the Bank in exchange for notes, because no profit could be made by the exportation of bullion; what security would the Bank have that caprice or ill-will might not render the practice general of discontinuing the use of small notes altogether, and demanding guineas of the Bank in lieu of them? Not only then must the Bank reduce their circulation 15 per cent. on their issues of 19 millions,—not only must they provide bullion for 4 millions of 1l. and 2l. notes which would remain in circulation, but they must also furnish themselves with the means of meeting the demands which may be made on them to pay the small notes of all the country banks in the kingdom,—and all this within the short period of two years. It must be confessed, that whether these apprehensions are likely or not likely to be realized, the Bank could not but make some provision for the worst that might happen; and though it is a situation in which their own indiscretion has involved them, it would be desirable, if possible, to protect them against the consequences of it.

  If the same benefits to the public,—the same security against the depreciation of the currency, can be obtained by more gentle means, it is to be hoped that all parties, who agree in principle, will concur in the expediency of adopting them. Let the Bank of England be required by Parliament to pay (if demanded) all notes above 20l.—and no other, at their option, either in specie, in gold standard bars, or in foreign coin (allowance being made for the difference in its purity) at the English mint value of gold bullion, viz. 3l. 17s. 10½d. per oz., such payments to commence at the period recommended by the Committee.

  This privilege of paying their notes as above described might be extended to the Bank for three or four years after such payments commenced, and if found advantageous, might be continued as a permanent measure. Under such a system the currency could never be depreciated below its standard price, as an ounce of gold and 3l. 17s. 10½d. would be uniformly of the same value. By such regulations we should effectually prevent the amount of small notes necessary for the smaller payments from being withdrawn from circulation, as no one who did not possess to the amount of 20l. at least of such small notes could exchange them at the Bank, and even then bullion, and not specie, could be obtained for them. Guineas might indeed be procured at the Mint for such bullion, but not till after the delay of some weeks or months, the loss of interest for which time would be considered as an actual expence; an expence which no one would incur, whilst the small notes could purchase as much of every commodity as the guineas which they represented. Another advantage attending the establishment of this plan would be to prevent the useless labour, which, under our system previously to 1797, was so unprofitably expended on the coinage of guineas, which on every occasion of an unfavourable exchange (we will not enquire by what caused) were consigned to the melting pot, and in spite of all prohibitions exported as bullion. It is agreed by all parties that such prohibitions were ineffectual, and that whatever obstacles were opposed to the exportation of the coin they were with facility evaded.

  An unfavourable exchange can ultimately be corrected only by an exportation of goods,—by the transmission of bullion,— or by a reduction in the amount of the paper circulation. The facility therefore with which bullion would be obtained at the Bank cannot be urged as an objection to this plan, because an equal degree of facility actually existed before 1797, and must exist under any system of Bank payments. Neither ought it to be urged, because it is now no longer questioned by all those who have given the subject of currency much of their consideration, that not only is the law against the exportation of bullion, whether in coin or in any other form, ineffectual, but that it is also impolitic and unjust; injurious to ourselves only, and advantageous to the rest of the world.

  The plan here proposed appears to me to unite all the advantages of every system of banking which has been hitherto adopted in Europe. It is in some of its features similar to the banks of deposit of Amsterdam and Hamburgh. In those establishments bullion is always to be purchased from the Bank at a fixed invariable price. The same thing is proposed for the Bank of England; but in the foreign banks of deposit, they have actually in their coffers, as much bullion, as there are credits for bank money in their books; accordingly there is an inactive capital as great as the whole amount of the commercial circulation. In our Bank, however, there would be an amount of bank money, under the name of bank-notes, as great as the demands of commerce could require, at the same time there would not be more inactive capital in the bank coffers than that fund which the Bank should think it necessary to keep in bullion, to answer those demands which might occasionally be made on them. It should always be remembered too, that the Bank would be enabled by contracting their issues of paper to diminish such demands at pleasure. In imitation of the Bank of Hamburgh, who purchase silver at a fixed price, it would be necessary for the Bank to fix a price very little below the mint price, at which they would at all times purchase, with their notes, such gold bullion as might be offered to them.

  The perfection of banking is to enable a country by means of a paper currency (always retaining its standard value) to carry on its circulation with the least possible quantity of coin or bullion. This is what this plan would effect. And with a silver coinage, on just principles, we should possess the most economical and the most invariable currency in the world. The variations in the price of bullion, whatever demand there might be for it on the continent, or whatever supply might be poured in from the mines in America, would be confined within the prices at which the Bank bought bullion, and the mint price at which they sold it. The amount of the circulation would be adjusted to the wants of commerce with the greatest precision; and if the Bank were for a moment so indiscreet as to over- charge the circulation, the check which the public would possess would speedily admonish them of their error. As for the country Banks, they must, as now, pay their notes when demanded in Bank of England notes. This would be a sufficient security against the possibility of their being able too much to augment the paper circulation. There would be no temptation to melt the coin, and consequently the labour which has been so uselessly bestowed by one party in recoining what another party found it their interest to melt into bullion, would be effectually saved. The currency could neither be clipped nor deteriorated, and would possess a value as invariable as gold itself, the great object which the Dutch had in view, and which they most successfully accomplished by a system very like that which is here recommended.

  [1 ]The Introduction is contained only in eds. 1–3.

  [2 ]Thoughts on the Restriction of Payments in Specie at the Banks of England and Ireland, By Lord King, London, Cadell and Davies, n.d.[1803]. A ‘Second Edition Enlarged, Including Some Remarks on the Coinage’ was published, under the title Thoughts on the Effects of the Bank Restrictions, in 1804.

  [1 ]Ed. 1 ‘previous’.

  [2 ]Adam Smith says ‘These qualities’.

  [i], p. 173.

  [2 ]Ed. 1 ‘was’.

  [i], p. 174.

  [1 ]Ed. 1 ‘was’.

  [1 ]Ed. 1 ‘operates as a stimulus’.

  [i], p. 304.

  [1 ]Eds. 1–2 ‘the law against the exportation’.

  [2 ]Ed. 4 has ‘corn’ for ‘coin’: this misprint is corrected by Ricardo in his own copy, which is preserved at Gatcombe.

  [* ]They might, strictly speaking, rather exceed that quantity, because as the Bank would add to the currency of the world, England would retain its share of the increase.

  [1 ]Eds. 1–2 read ‘because our currency being superfluous, there could be no better employment for the superfluity, than the sending it to a better market abroad.’

  [1 ]Eds. 1–2 do not contain ‘, in a small degree,’.

  [ii], p. 52. Adam Smith actually says ‘The operations of the mint’.

  [3 ]An Enquiry into the Nature and Effects of the Paper Credit of Great Britain, by Henry Thornton, London, Hatchard, 1802, pp. 124–5.

  [1 ]Eds. 1–2 do not contain the preceding sentence and open the paragraph with ‘Mr. Thornton, who has considered’.

  [2 ]ib. pp. 131–4.

  [1 ]Eds. 1–2 do not contain the three paragraphs that follow. Cp. for their substance Ricardo’s letter to Horner of 5 Feb. 1810, below, VI, 5–7.

  [2 ]Enquiry into Paper Credit, pp. 123–4.

  [1 ]Cp. the quotations from Thornton, below, p. 75–6.

  [1 ]Eds. 1–3 ‘debt.’

  [* ]This is strongly corroborated, by the statement of Mr. Rose in the House of Commons, that our exports exceeded our imports by (I believe) sixteen millions.3 In return for those exports no bullion could have been imported, because it is well known, that the price of bullion having been during the whole year higher abroad than in this country, a large quantity of our gold coin has been exported. To the value of the balance of exports, therefore, must be added the value of the bullion exported. A part of the amount may be due to us from foreign nations, but the remainder must be precisely equal to our foreign expenditure, consisting of subsidies to our allies, and the maintenance of our fleets and armies on foreign stations.4

  [2 ]In eds. 1–2 the two paragraphs that follow are placed below; seep. 74, footnote.

  [* ]It has been observed, in a work of great and deserved repute, the Edinburgh Review† , that an increase in the paper currency will only occasion a rise in the paper or currency price of commodities, but will not cause an increase in their bullion price.
  
  This would be true at a time when the currency consisted wholly of paper not convertible into specie, but not while specie formed any part of the circulation. In the latter case the effect of an increased issue of paper would be to throw out of circulation an equal amount of specie; but this could not be done without adding to the quantity of bullion in the market, and thereby lowering its value, or in other words, increasing the bullion price of commodities. It is only in consequence of this fall in the value of the metallic currency, and of bullion, that the temptation to export them arises; and the penalties on melting the coin is the sole cause of a small difference between the value of the coin and of bullion, or a small excess of the market above the mint price. But exporting of bullion is synonymous with an unfavourable balance of trade. From whatever cause an exportation of bullion, in exchange for commodities, may proceed, it is called (I think very incorrectly) an unfavourable balance of trade.1
  
  When the circulation consists wholly of paper, any increase in its quantity will raise the money price of bullion without lowering its value, in the same manner, and in the same proportion, as it will raise the prices of other commodities, and for the same reason will lower the foreign exchanges; but this will only be a nominal, not a real fall, and will not occasion the exportation of bullion, because the real value of bullion will not be diminished, as there will be no increase to the quantity in the market.2

  [* ]Strictly speaking, there can be no permanent measure of value. A measure of value should itself be invariable; but this is not the case with either gold or silver, they being subject to fluctuations as well as other commodities. Experience has indeed taught us, that though the variations in the value of gold or silver may be considerable, on a comparison of distant periods, yet for short spaces of time their value is tolerably fixed. It is this property, among their other excellencies, which fits them better than any other commodity for the uses of money. Either gold or silver may therefore, in the point of view in which we are considering them, be called a measure of value.

  [1 ]Eds. 1–3 ‘The great Mr. Locke’.

  [2 ]Some Considerations of the Consequences of the Lowering of Interest, and Raising the Value of Money, London, 1692, pp. 166–8.

  [1 ]A Treatise on the Coins of the Realm, Oxford, 1805, pp. 152–5.

  [2 ]14 Geo. III, c. 42.

  [3 ]38 Geo. III, c. 59. The quotation from the Statute, and this sentence, are from Lord Liverpool’s Treatise,p. 129.

  [4 ]ib. pp. 132–45.

  [1 ]In place of the six paragraphs that follow in the text, ending onp. 69 (which Ricardo takes, with slight alterations, from his letter to Horner of 5 Feb. 1810, below, VI, 3–5), ed. 1 and, unless stated otherwise, ed. 2, read ‘Gold has lately experienced a considerable rise compared with silver; an ounce of standard gold, which, on an average of many years, was of equal value to 14 oz. of standard silver, being now in the market of the same value as 15 oz. The proportion in our coin, as regulated by the mint, is as 1 to 15. It is therefore probable, that if the present market relative value of gold and silver should be permanent, and that we should be so fortunate as to restore our currency to the state in which it was previous [ed. 2 ‘previously’] to 1797, by the repeal of the Bank Restriction-bill, silver would in effect become the standard measure of value. Silver bullion only would then be carried to the mint to be coined; and as gold coin might be advantageously melted, it would disappear from circulation. This would continue till the mint should adopt more just proportions, or till government should follow the recommendations [ed. 2 ‘recommendation’] of Lord Liverpool, and make silver a legal tender for sums not exceeding a guinea.’ (See A Treatise on the Coins of the Realm, Oxford, 1805, p. 168.)
  
  At the end of this passage, eds. 1–2 attach a footnote which begins ‘Since writing the above, I have seen an act of parliament, passed in the 39th of Geo. III. wherein is the following clause:—’. The clause quoted is that given in the text of eds. 3–4, below, p. 68; the footnote is concluded by the two paragraphs which in the text of eds. 3–4 follow immediately the quotation from the Act (and which begin ‘This law is now’ and end ‘standard of currency.’).

  [2 ]Ed. 3 misprints ‘3l. 17s. 10¾ d.’.

  [3 ]Ed. 3 ‘or’.

  [1 ]Here end the six paragraphs referred to on p. 67, footnote 1.
  
  In eds. 1–2 the three paragraphs that follow in the text (together with the footnote attached to the third paragraph) are placed below; see p. 74, footnote 1.

  [1 ]Ed. 1 ‘previous’.

  [2 ]Ed. 1 ‘previous’.

  [3 ]Eds. 1–3 ‘or’.

  [4 ]Eds. 1–3 ‘price’.

  [* ]When the gold coin was debased, previously5 to the re-coinage in 1774, gold and silver bullion rose above their mint prices, and fell immediately on the gold coin attaining its present perfection. The exchanges were, owing to the same causes, from being unfavourable rendered favourable.

  [1 ]Ed. 1 reads ‘amounts’ here; and ‘has’, in place of ‘have’, six words later.

  [i], p. 534.

  [xi] (by Francis Horner), p. 419.

  [2 ]Ed. 1, by an error, ‘favourable’.

  [1 ]Eds. 1–2, in place of this paragraph, contain a passage, which in eds. 3–4 (the text printed above) is broken up and inserted in two different places earlier in the pamphlet. The passage in eds. 1–2 is made up as follows:
  
  First, the paragraph ‘Thus then specie’, printed above, p. 63;
  
  Second, a paragraph which reads ‘It is evident, then, that a depreciation of the circulating medium is the necessary consequence of its redundance; and that in the common state of the national currency this depreciation is counteracted by the exportation of the precious metals: but another very serious injury has been at different times sustained by the public from the depreciating of the circulating medium, by the un- lawful practice of clipping the coins’. This paragraph in eds. 3–4 is split in two: the first half, ‘It is evident’, appears above, p. 63, and the second half, ‘The public has’, above, p. 69.
  
  Third, the two paragraphs beginning ‘In proportion as’ and ‘Our gold coins’ (together with the footnote attached to the latter) which are given above, pp. 69–70.
  
  Finally, a paragraph which begins ‘But the disorders now affecting our currency, although not proceeding either from the debased state of the gold or silver coin, are nevertheless more serious in their ultimate consequences. Our circulating medium’ etc., from this point agreeing with the text of eds. 3–4.

  [1 ]In eds. 1–3 Ricardo inserts in square brackets ‘[here the cause is mistaken for the effect]’. Cp. above,p. 64, n. 1.

  [2 ]Enquiry into Paper Credit, pp. 231–2. Ricardo’s italics.

  [1 ]ib. p. 208, note. Ricardo’s italics.

  [2 ]Ed. 1 ‘previous’.

  [3 ]Ed. 1 ‘previous’.

  [i],p.47.

  [1 ]Enquiry into Paper Credit, pp. 206–7.

  [2 ]Thornton, ib. p. 203.

  [* ]An excess in the market above the mint price of gold or silver bullion, may, whilst the coins of both metals are legal tender, and there is no prohibition against the coinage of either metal,3 be caused by a variation in the relative value of those metals; but an excess of the market above the mint price proceeding from this cause will be at once perceived by its affecting only the price of one of the metals. Thus gold would be at or below, while silver was above, its mint price, or silver at or below its mint price, whilst gold was above.
  
  In the latter end of 1795, when the Bank had considerably more notes in circulation than either the preceding or the subsequent year, when their embarrassments had already commenced, when they appear to have resigned all prudence in the management of their concerns, and to have constituted Mr. Pitt sole director, the price of gold bullion did for a short time rise to 4l. 3s. or 4l. 4s. per oz.; but the directors were not without their fears for the consequences. In a remonstrance sent by them to Mr. Pitt, dated October 1795, after stating, “that the demand for gold not appearing likely soon to cease,” and “that it had excited great apprehension in the court of directors,” they observe, “The present price of gold being 4l. 3s. to 4l. 4s.† per ounce, and our guineas being to be purchased at 3l. 17s. 10½d., clearly demonstrates the grounds of our fears; it being only necessary to state those facts to the Chancellor of the Exchequer.”3 It is remarkable that no price of gold above the mint price is quoted during the whole year in Wetenhall’s list. In December it is there marked 3l. 17s. 6d.

  [1 ]Ed. 1 ‘previous’.

  [2 ]Should be ‘one-sixth’, to agree with the calculations that follow.

  [1 ]Eds. 1–2 do not contain this paragraph.

  [2 ]Enquiry into Paper Credit, p. 191.

  [1 ]Ricardo in his letter to Horner of 5 Feb. 1810 had quoted this assertion as J. Marryat’s; see below, VI, 7.

  [* ]The relative value of gold and silver is on the Continent nearly the same as in London.

  [1 ]Eds. 1–2 do not contain the last two paragraphs or the footnote attached. Cp. letter to Horner, 5 Feb. 1810, below, VI, 7.

  [2 ]By ‘A Friend to Bank-notes’ (Trower) in the Morning Chronicle, 14 Sept. 1809; cp. above, p. 28.

  [* ]It must be meant that every guinea in the Bank would leave the country; the temptation of fifteen per cent. is amply sufficient to send those out which can be collected from the circulation.

  [3 ]Enquiry into Paper Credit, p. 124.

  [1 ]The last two sentences are reproduced almost verbatim from Ricardo’s letter to the Morning Chronicle, 20 Sept. 1809, above,p. 24.

  [1 ]July 1803, Art. XI (by Francis Horner), pp. 417–18.

  [2 ]Enquiry into Paper Credit, p. 116.

  [3 ]In a speech in the House of Commons, on 14 May 1811, Thornton acknowledged the change of his opinion. Referring to ‘that dangerous doctrine’ according to which the high price of gold ‘was no indication of an excess of paper or of a depreciation of it, but was simply an evidence of an unfavourable balance of trade’ he said: ‘It was an error to which he himself had once inclined, but he had stood corrected after a fuller consideration of the subject.’ See Substance of Two Speeches of Henry Thornton, Esq. in the Debate in the House of Commons, on the Report of the Bullion Committee, London, Hat-chard, 1811, pp. 60–61.

  [1 ]In place of the last two paragraphs (which Ricardo reproduces from his letter to Horner of 5 Feb. 1810, below, VI, 6), eds. 1–2 read: ‘But it has been contended, that bank- notes are the representatives of silver and not of gold coin.
  
  ‘Bank-notes must necessarily be the representative of that coin which is the standard of currency, and there can be no doubt that for near a century gold has been the standard metal. But if a change have taken place, and silver be now the standard of value, and consequently bank- notes the representative of the silver coins, this will not remove the difficulty.’ (These two paragraphs of eds. 1–2, and the two which follow them in the text, are based on Ricardo’s letter to the Morning Chronicle, 23 Nov. 1809, above, pp. 28–31.)

  [2 ]Above, p. 68.

  [1 ]Eds. 1–3 ‘twelve’ in place of ‘three’.

  [1 ]This sentence is reproduced almost verbatim from Ricardo’s letter to the Morning Chronicle, 20 Sept. 1809, above, p. 27.

  [* ]They might, on some occasions, displace Bank of England notes, but that consideration does not affect the question which we are now discussing.

  [2 ]Eds. 1–2 ‘obliged’ in place of ‘compelled’.

  [3 ]Eds. 1–2 ‘were obliged’ in place of ‘used’.

  [4 ]By ‘A Friend to Bank-notes’ in the Morning Chronicle, 14 Sept. 1809; cp. above, p. 26.

  [i], p. 275.

  [2 ]Adam Smith says ‘not in the money, but in the money’s worth’.

  [i], pp. 278–9.

  [i], pp. 335–6.

  [1 ]Essay ‘Of Interest’, in Political Discourses, 1752

  [* ]In the following observations, I wish it to be understood, as supposing always the same degree of confidence and credit to exist.

  [1 ]Eds. 1–2 do not contain ‘permanently’.

  [* ]I have already allowed2 that the Bank, as far as they enable us to turn our coin into “materials, provisions, &c.”3 have produced a national benefit, as they have thereby increased the quantity of productive capital; but I am here speaking of an excess of their notes, of that quantity which adds to our circulation without effecting any corresponding exportation of coin, and which, therefore, degrades the notes below the value of the bullion contained in the coin which they represent.

  [1 ]Ed. 1 ‘its’.

  [1 ]Eds. 1–2 repeat here ‘in price’.

  [2 ]Enquiry into Paper Credit, pp. 68–9.

  [3 ]Eds. 1–2 do not contain ‘as proprietors of Bank stock’.

  [1 ]Adam Smith says ‘about a hundred and twenty-eight’.

  [2 ]Adam Smith says ‘funded and unfunded’.

  [3 ]Adam Smith says ‘would really’.

  [ii], pp. 415–16.

  [* ]At that period the price of gold kept steadily under its mint price.

  [1 ]Eds. 1–3 do not contain this Appendix. It was also published as a separate pamphlet under the title Observations on Some Passages in an Article in the Edinburgh Review, on the Depreciation of Paper Currency; also Suggestions for Securing to the Public a Currency as Invariable as Gold, with a Very Moderate Supply of That Metal. Being the Appendix, to the Fourth Edition of “The High Price of Bullion,” &c., London, Murray, etc., 1811.

  [2 ]Edinburgh Review, February 1811, Art. v. The article, which is by Malthus, reviews Ricardo’s High Price of Bullion and Reply to Bosanquet, together with pamphlets on the depreciation of the currency by Mushet, Blake, Huskisson and Bosanquet.

  [1 ]pp. 342 and 343. The two sentences quoted are not consecutive in the original.

  [2 ]Above, p. 61.

  [1 ]p. 345. The italics are Ricardo’s.

  [2 ]Actually before, p. 342.

  [* ]We are here speaking of a balance of trade abstracted from a balance of payments. A balance of trade may be favourable whilst a balance of payments is unfavourable. It is the balance of payments only which operates on the exchange.

  [1 ]The two parts of the quotation are not consecutive.

  [2 ]p. 343.

  [3 ]p. 341.

  [1 ]p. 341.

  [1 ]The Question concerning the Depreciation of our Currency..., 1810, pp. 49–50.

  [2 ]Below, p. 171, note.

  [1 ]p. 362.

  [i], pp. 409–10.

  [* ]Part of the produce of the provinces is exported without any return, as it constitutes the revenue of absentees, but this consideration can have no effect on the question of currency.

  [1 ]Bullion Report, ‘Appendix of Accounts’, No. 49, and cp. ‘Minutes of Evidence’, p. 121.

  [2 ]i.e. the view of Ricardo who, according to the Reviewers, considered ‘redundancy or deficiency of currency as the mainspring of all commercial movements’.

  [1 ]p. 359.

  [* ]That an increase of bank-notes under 5l. should be considered as a substitute for the coins exported, rather than an actual increase of circulation, is often and justly maintained by those who oppose the reasoning of the Bullion Report; but when these same gentlemen want to establish their favourite theory, that there is no connection between the amount of the circulation and the rate of exchange, they do not forget to bring to their aid these small notes which they had before discarded.1

  [* ]It is not meant to be denied, that the sudden invasion of an enemy, or a convulsion in a country of any kind which renders the possession of property insecure, may form an exception to this rule, but the exchange will in general be unfavourable to a country thus circumstanced.

  [1 ]See below, p. 121.

  [2 ]Report, p. 60.

  [1 ]p. 364.

  [2 ]The italics are Ricardo’s.

  [1 ]p. 364.

  [* ]This is strongly corroborated, by the statement of Mr. Rose in the House of Commons, that our exports exceeded our imports by (I believe) sixteen millions.3 In return for those exports no bullion could have been imported, because it is well known, that the price of bullion having been during the whole year higher abroad than in this country, a large quantity of our gold coin has been exported. To the value of the balance of exports, therefore, must be added the value of the bullion exported. A part of the amount may be due to us from foreign nations, but the remainder must be precisely equal to our foreign expenditure, consisting of subsidies to our allies, and the maintenance of our fleets and armies on foreign stations.4

  [* ]It has been observed, in a work of great and deserved repute, the Edinburgh Review† , that an increase in the paper currency will only occasion a rise in the paper or currency price of commodities, but will not cause an increase in their bullion price.
  
  This would be true at a time when the currency consisted wholly of paper not convertible into specie, but not while specie formed any part of the circulation. In the latter case the effect of an increased issue of paper would be to throw out of circulation an equal amount of specie; but this could not be done without adding to the quantity of bullion in the market, and thereby lowering its value, or in other words, increasing the bullion price of commodities. It is only in consequence of this fall in the value of the metallic currency, and of bullion, that the temptation to export them arises; and the penalties on melting the coin is the sole cause of a small difference between the value of the coin and of bullion, or a small excess of the market above the mint price. But exporting of bullion is synonymous with an unfavourable balance of trade. From whatever cause an exportation of bullion, in exchange for commodities, may proceed, it is called (I think very incorrectly) an unfavourable balance of trade.1
  
  When the circulation consists wholly of paper, any increase in its quantity will raise the money price of bullion without lowering its value, in the same manner, and in the same proportion, as it will raise the prices of other commodities, and for the same reason will lower the foreign exchanges; but this will only be a nominal, not a real fall, and will not occasion the exportation of bullion, because the real value of bullion will not be diminished, as there will be no increase to the quantity in the market.2

  [* ]When the gold coin was debased, previously5 to the re-coinage in 1774, gold and silver bullion rose above their mint prices, and fell immediately on the gold coin attaining its present perfection. The exchanges were, owing to the same causes, from being unfavourable rendered favourable.

  [* ]An excess in the market above the mint price of gold or silver bullion, may, whilst the coins of both metals are legal tender, and there is no prohibition against the coinage of either metal,3 be caused by a variation in the relative value of those metals; but an excess of the market above the mint price proceeding from this cause will be at once perceived by its affecting only the price of one of the metals. Thus gold would be at or below, while silver was above, its mint price, or silver at or below its mint price, whilst gold was above.
  
  In the latter end of 1795, when the Bank had considerably more notes in circulation than either the preceding or the subsequent year, when their embarrassments had already commenced, when they appear to have resigned all prudence in the management of their concerns, and to have constituted Mr. Pitt sole director, the price of gold bullion did for a short time rise to 4l. 3s. or 4l. 4s. per oz.; but the directors were not without their fears for the consequences. In a remonstrance sent by them to Mr. Pitt, dated October 1795, after stating, “that the demand for gold not appearing likely soon to cease,” and “that it had excited great apprehension in the court of directors,” they observe, “The present price of gold being 4l. 3s. to 4l. 4s.† per ounce, and our guineas being to be purchased at 3l. 17s. 10½d., clearly demonstrates the grounds of our fears; it being only necessary to state those facts to the Chancellor of the Exchequer.”3 It is remarkable that no price of gold above the mint price is quoted during the whole year in Wetenhall’s list. In December it is there marked 3l. 17s. 6d.

  [* ]I have already allowed2 that the Bank, as far as they enable us to turn our coin into “materials, provisions, &c.”3 have produced a national benefit, as they have thereby increased the quantity of productive capital; but I am here speaking of an excess of their notes, of that quantity which adds to our circulation without effecting any corresponding exportation of coin, and which, therefore, degrades the notes below the value of the bullion contained in the coin which they represent.

  [* ]That an increase of bank-notes under 5l. should be considered as a substitute for the coins exported, rather than an actual increase of circulation, is often and justly maintained by those who oppose the reasoning of the Bullion Report; but when these same gentlemen want to establish their favourite theory, that there is no connection between the amount of the circulation and the rate of exchange, they do not forget to bring to their aid these small notes which they had before discarded.1

  [3]Probably in a speech on 26 Jan.1810. Hansard (XV, 156) reports him as saying simply that ‘for a very long time past our export trade had been carried on in manufactures, with a perpetual balance of millions in favour of this country.’ George Rose was then Vice-President of the Board of Trade.

  [4]Eds. 1–2 do not contain this footnote.

  [†]Vol. I, p. 183.3

  \
  
  

  [3]October 1802, Art. xxv (by Francis Horner), on Thornton’s Paper Credit.

  [1]Ed. 3 has here an additional paragraph: ‘It is highly essential to a due understanding of this subject, that we should accurately distinguish between cause and effect. In the work to which I have already alluded, it is said, (Page 184) “When the local rise of the price of goods consists in the actual increase of their bullion price, a real fall in the foreign exchange will generally take place, and will occa- sion, by the demand for bullion to be exported, a fluctuating excess of the market price above the mint price of gold.” Here, and in many other parts of the same article, the fall in the exchange, or the unfavourable balance of trade, is stated to be the cause of the excess of the market above the mint price of gold, but to me it appears to be the effect of such excess. An increase of paper currency we have just seen, lowers the value of gold bullion but raises its money price. It is the fall in its value which causes its exportation, and therefore the fall of the exchange.’

  [2]Eds. 1–2 do not contain this footnote.

  [5]Ed. 1 ‘previous’.

  [3]Eds. 1–2 do not contain ‘and there is no prohibition against the coinage of either metal,’.

  [†]It is difficult to determine on what authority the directors made this assertion, as by a return lately made to parliament it appears that during the year 1795 they did not purchase gold bullion at a price higher than 3l. 17s. 6d.4

  
  
  

  [4]Eds. 1–3 do not contain this footnote. For the return referred to, which is dated 22 Feb. 1811, see below, V, 462, n. 3.

  [3]‘Report of the Lords’ Committee of Secrecy...Relating to the Bank’, 1797 (reprint 1810), p. 84.

  [2]Above, p. 55.

  [3]See quotation above, p. 89.

  [1]The allusion is to Trotter’s Principles of Currency and Exchanges, 1810, pp. 24 and 50; cp. below, pp. 384 and 395.

• Back to Top

  3: An Essay on the Influence of a Low Price of Corn on the Profits of Stock [1815/2004]

  David Ricardo, The Works and Correspondence of David Ricardo, ed. Piero Sraffa with the Collaboration of M.H. Dobb (Indianapolis: Liberty Fund, 2005). Vol. 4 Pamphlets and Papers 1815-1823. Chapter: AN ESSAY ON THE INFLUENCE OF A LOW PRICE OF CORN ON THE PROFITS OF STOCK 1815

  Accessed from oll.libertyfund.org/title/205/38579 on 2010-02-03

  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.

  ---

  plan of the edition

  • volumeI. Principles of Political Economy and Taxation
  • II. Notes on Malthus
  • III. Pamphlets and Papers, 1809–1811
  • IV. Pamphlets and Papers, 1815–1823
  • V. Speeches and Evidence
  • VI. Letters, 1810–1815
  • VII. Letters, 1816–1818
  • VIII. Letters, 1819–June 1821
  • IX. Letters, July 1821–1823
  • X. Biographical Miscellany
  • XI. General Index
  

  An Essay on a low Price of Corn 1815 edition.

  

  An Essay on a low Price of Corn 1815 2nd edition.

  NOTE ON ‘ESSAY ON PROFITS’

  ‘I will endeavor to state the question itself. When Capital increases in a country, and the means of employing Capital already exists, or increases, in the same proportion, the rate of interest and of profits will not fall.

  1 Advertisement in Morning Post, 3 February. Ricardo had read the pamphlet by 6 February (see below, VI, 172). There appear to be four issues of this pamphlet, differing only in the imprint on the title-page and the advertisements on the last page.
  2 Advertised as ‘This day is published, price 2/6’ in the Morning Post of 10 February. It had been advertised in the same paper on 3 February as ‘This day is published’ price 1/6, but this was undoubtedly premature, as on 8 February another advertisement in the same paper announced it as ‘In a few days will be published’, no price being given: the price of 1/6 is that of all the preliminary announcements, but in fact all the copies of the pamphlet examined bear the price of 2/6, either imprinted or corrected in ink from 1/6. There is some doubt as to the exact date of publication, which may have been a few days earlier, since newspaper advertisements were often delayed: on 17 February Mr Brand in the House of Commons quoted it as having been published ‘ten days ago’ (Hansard, XXIX, 834). What is certain is that the Grounds was published after the Inquiry into Rent: for in the three earliest issues of the Inquiry into Rent the Grounds is advertised as ‘In a few days will be published, price 1s. 6d.’, and in the fourth issue (which bears the imprint of Murray and Johnson) the Grounds is advertised as ‘Just published’, no price being given. Ricardo had read the Grounds by 13 February.
  3 Advertisement in the Morning Chronicle, 13 February. The same paper had advertised it on 7 February as to be published ‘in a few days’. Ricardo had read it by 9 March 1815.
  4 Advertisement in Morning Post, 24 February. It had been advertised in The Monthly Literary Advertiser of 10 February as to be ‘speedily’ published. The preface is dated 17 Feb.1815. Ricardo had read it by 14 March 1815.
  5Advertisement in Morning Post, 24 February. It had been advertised in the Morning Chronicle of 23 February as ‘published this day’, but no price was stated.
  3	February	1815	Malthus, Inquiry into Rent.1
  10	”	”	Malthus, Grounds of an Opinion.2
  13	”	”	[West], Essay on the Application of Capital to Land.3
  24	”	”	Torrens, Essay on the External Corn Trade.4
  24	”	”	Ricardo, Essay on Profits.5

  

  An Essay on the Application of Capital 1815 edition.

  A ‘Second Edition’ of the Essay on Profits, also published in 1815, contains no alterations, not even the correction of misprints, and would be more accurately described as a reprint. As the same type appears to have been used, it probably followed the first edition within a few days.

  INTRODUCTION

  In treating on the subject of the profits of capital, it is necessary to consider the principles which regulate the rise and fall of rent; as rent and profits, it will be seen, have a very intimate connexion with each other. The principles which regulate rent are briefly stated in the following pages, and differ in a very slight degree from those which have been so fully and so ably developed by Mr. Malthus in his late excellent publication,1 to which I am very much indebted. The consideration of those principles, together with those which regulate the profit of stock, have convinced me of the policy of leaving the importation of corn unrestricted by law. From the general principle set forth in all Mr. Malthus’s publications, I am persuaded that he holds the same opinion as far as profit and wealth are concerned with the question;—but, viewing, as he does, the danger as formidable of depending on foreign supply for a large portion of our food, he considers it wise, on the whole, to restrict importation. Not participating with him in those fears, and perhaps estimating the advantages of a cheap price of corn at a higher value, I have come to a different conclusion. Some of the objections urged in his last publication,—“Grounds of an Opinion,” &c.2 I have endeavoured to answer; they appear to me to be unconnected with the political danger he apprehends, and to be inconsistent with the general doctrines of the advantages of a free trade, which he has himself, by his writings, so ably contributed to establish.

  ON THE INFLUENCE, &c.

  Mr. Malthus very correctly defines, “the rent of land to be that portion of the value of the whole produce which remains to the owner, after all the outgoings belonging to its cultivation, of whatever kind, have been paid, including the profits of the capital employed, estimated according to the usual and ordinary rate of the profits of agricultural stock at the time being.”1

  Whenever, then, the usual and ordinary rate of the profits of agricultural stock, and all the outgoings belonging to the cultivation of land, are together equal to the value of the whole produce, there can be no rent.

  And when the whole produce is only equal in value to the outgoings necessary to cultivation, there can neither be rent nor profit.

  In the first settling of a country rich in fertile land, and which may be had by any one who chooses to take it, the whole produce, after deducting the outgoings belonging to cultivation, will be the profits of capital, and will belong to the owner of such capital, without any deduction whatever for rent.

  Thus, if the capital employed by an individual on such land were of the value of two hundred quarters of wheat, of which half consisted of fixed capital, such as buildings, implements, &c. and the other half of circulating capital,—if, after replacing the fixed and circulating capital, the value of the remaining produce were one hundred quarters of wheat, or of equal value with one hundred quarters of wheat, the neat profit to the owner of capital would be fifty per cent. or one hundred profit on two hundred capital.

  For a period of some duration, the profits of agricultural stock might continue at the same rate, because land equally fertile, and equally well situated, might be abundant, and therefore, might be cultivated on the same advantageous terms, in proportion as the capital of the first, and subsequent settlers augmented.

  Profits might even increase, because the population increasing, at a more rapid rate than capital, wages might fall; and instead of the value of one hundred quarters of wheat being necessary for the circulating capital, ninety only might be required: in which case, the profits of stock would rise from fifty to fifty-seven per cent.

  Profits might also increase, because improvements might take place in agriculture, or in the implements of husbandry, which would augment the produce with the same cost of production.

  If wages rose, or a worse system of agriculture were practised, profits would again fall.

  These are circumstances which are more or less at all times in operation—they may retard or accelerate the natural effects of the progress of wealth, by raising or lowering profits—by increasing or diminishing the supply of food, with the employment of the same capital on the land.*

  We will, however, suppose that no improvements take place in agriculture, and that capital and population advance in the proper proportion, so that the real wages of labour, continue uniformly the same;—that we may know what peculiar effects are to be ascribed to the growth of capital, the increase of population, and the extension of cultivation, to the more remote, and less fertile land.

  In this state of society, when the profits on agricultural stock, by the supposition, are fifty per cent. the profits on all other capital, employed either in the rude manufactures, common to such a stage of society, or in foreign commerce, as the means of procuring in exchange for raw produce, those commodities which may be in demand, will be also, fifty per cent.*

  If the profits on capital employed in trade were more than fifty per cent. capital would be withdrawn from the land to be employed in trade. If they were less, capital would be taken from trade to agriculture.

  After all the fertile land in the immediate neighbourhood of the first settlers were cultivated, if capital and population increased, more food would be required, and it could only be procured from land not so advantageously situated. Supposing then the land to be equally fertile, the necessity of employing more labourers, horses, &c. to carry the produce from the place where it was grown, to the place where it was to be consumed, although no alteration were to take place in the wages of labour, would make it necessary that more capital should be permanently employed to obtain the same produce. Suppose this addition to be of the value of ten quarters of wheat, the whole capital employed on the new land would be two hundred and ten, to obtain the same return as on the old; and, consequently the profits of stock would fall from fifty to forty-three per cent. or ninety on two hundred and ten.*

  On the land first cultivated, the return would be the same as before, namely, fifty per cent. or one hundred quarters of wheat; but, the general profits of stock being regulated by the profits made on the least profitable employment of capital on agriculture, a division of the one hundred quarters would take place, forty-three per cent. or eighty-six quarters would constitute the profit of stock, and seven per cent. or fourteen quarters, would constitute rent. And that such a division must take place is evident, when we consider that the owner of the capital of the value of two hundred and ten quarters of wheat would obtain precisely the same profit, whether he cultivated the distant land, or paid the first settler fourteen quarters for rent.

  In this stage, the profits on1 all capital employed in trade would fall to forty-three per cent.

  If, in the further progress of population and wealth, the produce of more land were required to obtain the same return, it might be necessary to employ, either on account of distance, or the worse quality of land, the value of two hundred and twenty quarters of wheat, the profits of stock would then fall to thirty-six per cent. or eighty on two hundred and twenty, and the rent of the first land would rise to twenty-eight quarters of wheat, and on the second portion of land cultivated, rent would now commence, and would amount to fourteen quarters.

  The profits on all trading capital would also fall to thirty-six per cent.

  Thus by bringing successively land of a worse quality, or less favourably situated into cultivation, rent would rise on the land previously cultivated, and precisely in the same degree would profits fall; and if the smallness of profits do not check accumulation, there are hardly any limits to the rise of rent, and the fall of profit.

  If instead of employing capital at a distance on new land, an additional capital of the value of two hundred and ten quarters of wheat be employed on the first land cultivated, and its return were in like manner forty-three per cent. or ninety on two hundred and ten; the produce of fifty per cent. on the first capital, would be divided in the same manner as before forty-three per cent. or eighty-six quarters would constitute profit, and fourteen quarters rent.

  If two hundred and twenty quarters were employed in addition with the same result as before, the first capital would afford a rent of twenty-eight; and the second of fourteen quarters, and the profits on the whole capital of six hundred and thirty quarters would be equal, and would amount to thirty-six per cent.

  Supposing that the nature of man was so altered, that he required double the quantity of food that is now necessary for his subsistence, and consequently, that the expenses of cultivation were very greatly increased. Under such circumstances the knowledge and capital of an old society employed on fresh and fertile land in a new country would leave a much less surplus produce; consequently, the profits of stock could never be so high. But accumulation, though slower in its progress, might still go on, and rent would begin just as before, when more distant or less fertile land were cultivated.

  The natural limit to population would of course be much earlier, and rent could never rise to the height to which it may now do; because, in the nature of things, land of the same poor quality would never be brought into cultivation;—nor could the same amount of capital be employed on the better land with any adequate return of profit.*

  The following table is constructed on the supposition, that the first portion of land yields one hundred quarters profit on a capital of two hundred quarters; the second portion, ninety quarters on two hundred and ten, according to the foregoing calculations.† It will be seen that during the progress of a country the whole produce raised on its land will increase, and for a certain time that part of the produce which belongs to the profits of stock, as well as that part which belongs to rent will increase; but that at a later period, every accumulation of capital will be attended with an absolute, as well as a proportionate diminution of profits,—though rents will uniformly increase. A less revenue, it will be seen, will be enjoyed by the owner of stock, when one thousand three hundred and fifty quarters are employed on the different qualities of land, than when one thousand one hundred were employed. In the former case the whole profits will be only two hundred and seventy, in the latter two hundred and seventy five; and when one thousand six hundred and ten are employed, profits will fall to two hundred and forty-one and a half.*

  This is a view of the effects of accumulation which is exceedingly curious, and has, I believe, never before been noticed.

  It will be seen by the table, that, in a progressive country, rent is not only absolutely increasing, but that it is also increasing in its ratio to the capital employed on the land; thus

  TABLE, shewing the Progress of Rent and Profit under an assumed Augmentation of Capital.

  Capital estimated in quarters of wheat.	Profit per cent.	Neat produce in quarters of wheat after paying the cost of production on each capital.	Profit of 1st portion of land in quarters of wheat.	Rent of 1st portion of land in quarters of wheat.	Profit of 2d portion of land in quarters of wheat.	Rent of 2d portion of land in quarters of wheat.	Profit of 3d portion of land in quarters of wheat.	Rent of 3d portion of land in quarters of wheat.	Profit of 4th portion of land in quarters of wheat.	Rent of 4th portion of land in quarters of wheat.	Profit of 5th portion of land in quarters of wheat.	Rent of 5th portion of land in quarters of wheat.	Profit of 6th portion of land in quarters of wheat.	Rent of 6th portion of land in quarters of wheat.	Profit of 7th portion of land in quarters of wheat.	Rent of 7th portion of land in quarters of wheat.	Profit of 8th portion of land in quarters of wheat.
  200	50	100	100	none.
  210	43	90	86	14	90	none.
  220	36	80	72	28	76	14	80	none.
  230	30	70	60	40	63	27	66	14	70	none.
  240	25	60	50	50	52½	37½	55	25	57½	12½	60	none.
  250	20	50	40	60	42	48	44	36	46	24	48	12	50	none.
  260	15	40	30	70	31½	58½	33	47	34½	35½	36	24	37½	12½	40	none.
  270	11	30	22	78	23	67	24	56	25.3	44.7	26.4	33.6	27½	22½	27.6	12.4	29.7

  	When the whole capital employed is	Whole amount of rent received by landlords in quarters of wheat.	Whole amount of profits in quarters received owners of stock.	Profit per cent. on the whole capital.	Rent per cent. on the whole capital.	Total produce in quarters of wheat, after paying the cost of production.
  1st Period	200	none.	100	50		100
  2d Ditto	410	14	176	43	3½	190
  3d Ditto	630	42	228	36	6¾	270
  4th Ditto	860	81	259	30	9½	340
  5th Ditto	1100	125	275	25	11½	400
  6th Ditto	1350	180	270	20	13¼	450
  7th Ditto	1610	248½	241½	15	15½	490
  8th Ditto	1880	314½	205½	11	16½	520

  when four hundred and ten was the whole capital employed, the landlord obtained three and a half per cent.; when one thousand one hundred—thirteen and a quarter per cent.; and when one thousand eight hundred and eighty—sixteen and a half per cent. The landlord not only obtains a greater produce, but a larger share.

  * Rent then is in all cases a portion of the profits previously obtained on the land. It is never a new creation of revenue, but always part of a revenue already created.

  Profits of stock fall only, because land equally well adapted to produce food cannot be procured; and the degree of the fall of profits, and the rise of rents, depends wholly on the increased expense of production.

  If, therefore, in the progress of countries in wealth and population, new portions of fertile land could be added to such countries, with every increase of capital, profits would never fall, nor rents rise.†

  If the money price of corn, and the wages of labour, did not vary in price in the least degree, during the progress of the country in wealth and population, still profits would fall and rents would rise; because more labourers would be employed on the more distant or less fertile land, in order to obtain the same supply of raw produce; and therefore the cost of production would have increased, whilst the value of the produce continued the same.

  † Excepting, as has been before observed,1 the real wages of labour should rise, or a worse system of agriculture be practised.

  But the price of corn, and of all other raw produce, has been invariably observed to rise as a nation became wealthy, and was obliged to have recourse to poorer lands for the production of part of its food; and very little consideration will convince us, that such is the effect which would naturally be expected to take place under such circumstances.

  The exchangeable value of all commodities, rises as the difficulties of their production increase. If then new difficulties occur in the production of corn, from more labour being necessary, whilst no more labour is required to produce gold, silver, cloth, linen, &c. the exchangeable value of corn will necessarily rise, as compared with those things. On the contrary, facilities in the production of corn, or of any other commodity of whatever kind, which shall afford the same produce with less labour, will lower its exchangeable value.* Thus we see that improvements in agriculture, or in the implements of husbandry, lower the exchangeable value of corn;† improvements in the machinery connected with the manufacture of cotton, lower the exchangeable value of cotton goods; and improvements in mining, or the discovery of new and more abundant mines of the precious metals, lower the value of gold and silver, or which is the same thing, raises the price of all other commodities. Wherever competition can have its full effect, and the pro-

  † The causes, which render the acquisition of an additional quantity of corn more difficult are, in progressive countries, in constant operation, whilst marked improvements in agriculture, or in the implements of husbandry are of less frequent occurrence. If these opposite causes acted with equal effect, corn would be subject only to accidental variation of price, arising from bad seasons, from greater or less real wages of labour, or from an alteration in the value of the precious metals, proceeding from their abundance or scarcity. duction of the commodity be not limited by nature, as in the case with some wines, the difficulty or facility of their production will ultimately regulate their exchangeable value.* The sole effect then of the progress of wealth on prices, independently of all improvements, either in agriculture or manufactures, appears to be to raise the price of raw produce and of labour, leaving all other commodities at their original prices,1 and to lower general profits in consequence of the general rise of wages.

  This fact is of more importance than at first sight appears, as it relates to the interest of the landlord, and the other parts of the community. Not only is the situation of the landlord improved, (by the increasing difficulty of procuring food, in consequence of accumulation) by obtaining an increased quantity of the produce of the land, but also by the increased exchangeable value of that quantity. If his rent be increased from fourteen to twenty-eight quarters, it would be more than doubled, because he would be able to command more than double the quantity of commodities, in exchange for the twenty-eight quarters. As rents are agreed for, and paid in money, he would, under the circumstances supposed, receive more than double of his former money rent.

  In like manner, if rent fell, the landlord would suffer two losses; he would be a loser of that portion of the raw produce which constituted his additional rent; and further, he would be a loser by the depreciation in the real or exchangeable value of the raw produce in which, or in the value of which, his remaining rent would be paid.*

  As the revenue of the farmer is realized in raw produce, or in the value of raw produce, he is interested, as well as the landlord, in its high exchangeable value, but a low price of produce may be compensated to him by a great additional quantity.

  It follows then, that the interest of the landlord is always opposed to the interest of every other class in the community. His situation is never so prosperous, as when food is scarce and dear: whereas, all other persons are greatly benefited by procuring food cheap. High rent and low profits, for they invariably accompany each other, ought never to be the subject of complaint, if they are the effect of the natural course of things.

  They are the most unequivocal proofs of wealth and prosperity, and of an abundant population, compared with the fertility of the soil. The general profits of stock depend wholly on the profits of the last portion of capital employed on the land; if, therefore, landlords were to relinquish the whole of their rents, they would neither raise the general profits of stock, nor lower the price of corn to the consumer. It would have no other effect, as Mr. Malthus has observed,1 than to enable those farmers, whose lands now pay a rent, to live like gentlemen, and they would have to expend that portion of the general revenue, which now falls to the share of the landlord.

  A nation is rich, not according to the abundance of its money, nor to the high money value at which its commodities circulate, but according to the abundance of its commodities, contributing to its comforts and enjoyments. Although this is a proposition, from which few would dissent, many look with the greatest alarm at the prospect of the diminution of their money revenue, though such reduced revenue should have so improved in exchangeable value, as to procure considerably more of all the necessaries and luxuries of life.

  If then, the principles here stated as governing rent and profit be correct, general profits on capital, can only be raised by a fall in the exchangeable value of food, and which fall can only arise from three causes:

  1st. The fall of the real wages of labour, which shall enable the farmer to bring a greater excess of produce to market.

  2d. Improvements in agriculture, or in the implements of husbandry, which shall also increase the excess of produce.

  3dly. The discovery of new markets, from whence corn may be imported at a cheaper price than it can be grown for at home.

  The first of these causes is more or less permanent, according as the price from which wages fall, is more or less near that remuneration for labour, which is necessary to the actual subsistence of the labourer.

  The rise or fall of wages is common to all states of society, whether it be the stationary, the advancing, or the retrograde state. In the stationary state, it is regulated wholly by the increase or falling off of the population. In the advancing state, it depends on whether the capital or the population advance, at the more rapid course. In the retrograde state, it depends on whether population or capital decrease with the greater rapidity.

  As experience demonstrates that capital and population alternately take the lead, and wages in consequence are liberal or scanty, nothing can be positively laid down, respecting profits, as far as wages are concerned.

  But I think it may be most satisfactorily proved, that in every society advancing in wealth and population, independently of the effect produced by liberal or scanty wages, general profits must fall, unless there be improvements in agriculture, or corn can be imported at a cheaper price.

  It seems the necessary result of the principles which have been stated to regulate the progress of rent.

  This principle will, however, not be readily admitted by those who ascribe to the extension of commerce, and discovery of new markets, where our commodities can be sold dearer, and foreign commodities can be bought cheaper, the progress of profits, without any reference whatever to the state of the land, and the rate of profit obtained on the last portions of capital employed upon it. Nothing is more common than to hear it asserted, that profits on agriculture no more regulate the profits of commerce, than that the profits of commerce regulate the profits on agriculture.1 It is contended, that they alternately take the lead; and, if the profits of commerce rise, which it is said they do, when new markets are discovered, the profits of agriculture will also rise; for it is admitted, that if they did not do so, capital would be withdrawn from the land to be employed in the more profitable trade. But if the principles respecting the progress of rent be correct, it is evident, that with the same population and capital, whilst none of the agricultural capital is withdrawn from the cultivation of the land, agricultural profits cannot rise, nor can rent fall: either then it must be contended, which is at variance with all the principles of political economy, that the profits on commercial capital will rise considerably, whilst the profits on agricultural capital suffer no alteration, or, that under such circumstances, the profits on commerce will not rise.*

  It is this latter opinion which I consider as the true one. I do not deny that the first discoverer of a new and better market may, for a time, before competition operates, obtain unusual profits. He may either sell the commodities he exports at a higher price than those who are ignorant of the new market, or he may purchase the commodities imported at a cheaper price. Whilst he, or a few more exclusively follow this trade, their profits will be above the level of general profits. But it is of the general rate of profit that we are speaking, and not of the profits of a few individuals; and I cannot doubt that, in proportion as such trade shall be generally known and followed, there will be such a fall in the price of the foreign commodity in the importing country, in consequence of its increased abundance, and the greater facility with which it is procured, that its sale will afford only the common rate of profits—that so far from the high profits obtained by the few who first engaged in the new trade elevating the general rate of profits—those profits will themselves sink to the ordinary level.

  The effects are precisely similar to those which follow from the use of improved machinery at home.

  Whilst the use of the machine is confined to one, or a very few manufacturers, they may obtain unusual profits, because they are enabled to sell their commodities at a price much above the cost of production—but as soon as the machine becomes general to the whole trade, the price of the commodities will sink to the actual cost of production, leaving only the usual and ordinary profits.

  During the period of capital moving from one employment to another, the profits on that to which capital is flowing will be relatively high, but will continue so no longer than till the requisite capital is obtained.

  There are two ways in which a country may be benefited by trade—one by the increase of the general rate of profits, which, according to my opinion, can never take place but in consequence of cheap food, which is beneficial only to those who derive a revenue from the employment of their capital, either as farmers, manufacturers, merchants, or capitalists, lending their money at interest—the other by the abundance of commodities, and by a fall in their exchangeable value, in which the whole community participate. In the first case, the revenue of the country is augmented—in the second the same revenue becomes efficient in procuring a greater amount of the necessaries and luxuries of life.

  It is in this latter mode only* that nations are benefited by the extension of commerce, by the division of labour in manufactures, and by the discovery of machinery,—they all augment the amount of commodities, and contribute very much to the ease and happiness of mankind; but, they have no effect on the rate of profits, because they do not augment the produce compared with the cost of production on the land, and it is impossible that all other profits should rise whilst the profits on land are either stationary, or retrograde.

  Profits then depend on the price, or rather on the value of food. Every thing which gives facility to the production of food, however scarce, or however abundant commodities may become, will raise the rate of profits, whilst on the contrary, every thing which shall augment the cost of production without augmenting the quantity of food,* will, under every circumstance, lower the general rate of profits. The facility1 of obtaining food is2 beneficial in two ways to the owners of capital, it at the same time raises profits and increases the amount of consumable commodities. The facility in obtaining all other things, only increases the amount of commodities.

  If, then, the power of purchasing cheap food be of such great importance, and if the importation of corn will tend to reduce its price, arguments almost unanswerable respecting the danger of dependence on foreign countries for a portion of our food, for in no other view will the question bear an argument, ought to be brought forward to induce us to restrict importation, and thereby forcibly to detain capital in an employment which it would otherwise leave for one much more advantageous.

  If the legislature were at once to adopt a decisive policy with regard to the trade in corn—if it were to allow a permanently free trade, and did not with every variation of price, alternately restrict and encourage importation, we should undoubtedly be a regularly importing country. We should be so in consequence of the superiority of our wealth and population, compared to the fertility of our soil over our neighbours. It is only when a country is comparatively wealthy, when all its fertile land is in a state of high cultivation, and that it is obliged to have recourse to its inferior lands to obtain the food necessary for its population; or when it is originally without the advantages of a fertile soil, that it can become profitable to import corn.*

  It is, then, the dangers of dependence on foreign supply for any considerable quantity of our food, which can alone be opposed to the many advantages which, circumstanced as we are, would attend the importation of corn.

  These dangers do not admit of being very correctly estimated, they are in some degree, matters of opinion and cannot like the advantages on the other side, be reduced to accurate calculation. They are generally stated to be two—1st, that in the case of war a combination of the continental powers, or the influence of our principal enemy, might deprive us of our accustomed supply—2dly, that when bad seasons occurred abroad, the exporting countries would have, and would exercise, the power of withholding the quantity usually exported to make up for their own deficient supply.†

  If we became a regularly importing country, and foreigners could confidently rely on the demand of our market, much more land would be cultivated in the corn countries with a view to exportation. When we consider the value of even a few weeks consumption of corn in England, no interruption could be given to the export trade, if the continent supplied us with any considerable quantity of corn, without the most extensively ruinous commercial distress—distress which no sovereign, or combination of sovereigns, would be willing to inflict on their people; and, if willing, it would be a measure to which probably no people would submit. It was the endeavour of Buonaparte to prevent the exportation of the raw produce of Russia, more than [any]1 other cause which produced the astonishing efforts of the people of that country against the most powerful force perhaps ever assembled to subjugate a nation.

  The immense capital which would be employed on the land, could not be withdrawn suddenly, and under such circumstances, without immense loss; besides which, the glut of corn in their markets, which would affect their whole supply, and lower its value beyond calculation; the failure of those returns, which are essential in all commercial adventures, would occasion a scene of wide spreading ruin, which if a country would patiently endure, would render it unfit to wage war with any prospect of success. We have all witnessed the distress in this country, and we have all heard of the still greater distress in Ireland, from a fall in the price of corn, at a time too when it is acknowledged that our own crop has been deficient; when importation has been regulated by price, and when we have not experienced any of the effects of a glut. Of what nature would that distress have been if the price of corn had fallen to a half a quarter, or an eighth part of the present price. For the effects of plenty or scarcity, in the price of corn, are incalculably greater than in proportion to the increase or deficiency of quantity. These then, are the inconveniencies which the exporting countries would have to endure.

  Ours would not be light. A great diminution in our usual supply, amounting probably to one-eighth of our whole consumption, it must be confessed, would be an evil of considerable magnitude; but we have obtained a supply equal to this, even when the growth of foreign countries was not regulated by the constant demand of our market. We all know the prodigious effects of a high price in procuring a supply. It cannot, I think be doubted, that we should obtain a considerable quantity from those countries with which we were not at war; which, with the most economical use of our own produce, and the quantity in store,* would enable us to subsist till we had bestowed the necessary capital and labour on our own land, with a view to future production. That this would be a most afflicting change, I certainly allow; but I am fully persuaded that we should not be driven to such an alternative, and that notwithstanding the war, we should be freely supplied with the corn, expressly grown in foreign countries for our consumption. Buonaparte, when he was most hostile to us, permitted the exportation of corn to England by licences, when our prices were high from a bad harvest, even when all other commerce was prohibited. Such a state of things could not come upon us suddenly; a danger of this nature would be partly foreseen, and due precautions would be taken. Would it be wise then to legislate with the view of preventing an evil which might never occur; and to ward off a most improbable danger, sacrifice annually a revenue of some millions?

  In contemplating a trade in corn, unshackled by restrictions on importation, and a consequent supply from France, and other countries, where it can be brought to market, at a price not much above half that at which we can ourselves produce it on some of our poorer lands, Mr. Malthus does not sufficiently allow for the greater quantity of corn, which would be grown abroad, if importation was to become the settled policy of this country.1 There cannot be the least doubt that if the corn countries could depend on the markets of England for a regular demand, if they could be perfectly secure that our laws, respecting the corn trade, would not be repeatedly vacillating between bounties, restrictions, and prohibitions, a much larger supply would be grown, and the danger of a greatly diminished exportation, in consequence of bad seasons, would be less likely to occur. Countries which have never yet supplied us, might, if our policy was fixed, afford us a considerable quantity.

  It is at such times that it would be particularly the interest of foreign countries to supply our wants, as the exchangeable value of corn does not rise in proportion only to the deficiency of supply, but two, three, four, times as much, according to the amount of the deficiency.

  If the consumption of England is ten million quarters, which, in an average year, would sell for forty millions of money; and, if the supply should be deficient one fourth, the seven million five hundred thousand quarters would not sell for forty millions only, but probably for fifty millions, or more. Under the circumstances then of bad seasons, the exporting country would content itself with the smallest possible quantity necessary for their own consumption, and would take advantage of the high price in England, to sell all they could spare, as not only would corn be high, as compared with money, but as compared with all other things; and if the growers of corn adopted any other rule, they would be in a worse situation, as far as regarded wealth, than if they had constantly limited the growth of corn to the wants of their own people.

  If one hundred millions of capital were employed on the land, to obtain the quantity necessary to their own subsistence, and twenty millions more, that they might export the produce, they would lose the whole return of the twenty millions in the scarce year, which they would not have done had they not been an exporting country.

  At whatever price exportation might be restricted, by foreign countries, the chance of corn rising to that price would be diminished by the greater quantity produced in consequence of our demand.

  With respect to the supply of corn, it has been remarked,1 in reference to a single country, that if the crops are bad in one district, they are generally productive in another; that if the weather is injurious to one soil, or to one situation, it is beneficial to a different soil and different situation; and, by this compensating power, Providence has bountifully secured us from the frequent recurrence of dearths. If this remark be just, as applied to one country, how much more strongly may it be applied to all the countries together which compose our world? Will not the deficiency of one country be made up by the plenty of another? and, after the experience which we have had of the power of high prices to procure a supply, can we have any just reason to fear that we shall be exposed to any particular danger from depending on importation, for so much corn as may be necessary for a few weeks of our consumption.

  From all that I can learn, the price of corn in Holland, which country depends almost wholly on foreign supply, has been remarkably steady, even during the convulsed times which Europe has lately experienced—a convincing proof, notwithstanding the smallness of the country, that the effects of bad seasons are not exclusively borne by importing countries.

  That great improvements have been made in agriculture, and that much capital has been expended on the land, it is not attempted to deny; but, with all those improvements, we have not overcome the natural impediments resulting from our increasing wealth and prosperity, which obliges us to cultivate at a disadvantage our poor lands, if the importation of corn is restricted or prohibited. If we were left to ourselves, unfettered by legislative enactments, we should gradually withdraw our capital from the cultivation of such lands, and import the produce which is at present raised upon them. The capital withdrawn would be employed in the manufacture of such commodities as would be exported in return for the corn.* Such a distribution of part of the capital of the country, would be more advantageous, or it would not be adopted. This principle is one of the best established in the science of political economy, and by no one is more readily admitted than by Mr. Malthus. It is the foundation of all his arguments, in his comparison of the advantages and disadvantages attending an unrestricted trade in corn, in his “Observations on the Corn Laws.”

  In his last publication, however, in one part of it,1 he dwells with much stress on the losses of agricultural capital, which the country would sustain, by allowing an unrestricted importation. He laments the loss of that which by the course of events has become of no use to us, and by the employment of which we actually lose. We might just as fairly have been told, when the steam-engine, or Mr. Arkwright’s cotton-machine, was brought to perfection, that it would be wrong to adopt the use of them, because the value of the old clumsy machinery would be lost to us. That the farmers of the poorer lands would be losers, there can be no doubt, but the public would gain many times the amount of their losses; and, after the exchange of capital from land to manufactures had been effected, the farmers themselves, as well as every other class of the community, except the landholders, would very considerably increase their profits.

  It might, however, be desirable, that the farmers, during their current leases, should be protected against the losses which they would undoubtedly suffer from the new value of money, which would result from a cheap price of corn, under their existing money engagements with their landlords.

  Although the nation would sacrifice much more than the farmers would save even by a temporary high price of corn, it might be just to lay restrictive duties on importation for three or four years, and to declare that, after that period, the trade in corn should be free, and that imported corn should be subject to no other duty than such as we might find it expedient to impose on corn of our own growth.*

  Mr. Malthus is, no doubt, correct, when he says, “If merely the best modes of cultivation now in use, in some parts of Great Britain, were generally extended, and the whole country was brought to a level, in proportion to its natural advantages of soil and situation, by the further accumulation and more equable distribution of capital and skill, the quantity of additional produce would be immense, and would afford the means of subsistence to a very great increase of population.[”]*

  This reflection is true, and is highly pleasing—it shews that we are yet at a great distance from the end of our resources, and that we may contemplate an increase of prosperity and wealth, far exceeding that of any country which has preceded us. This may take place under either system, that of importation or restriction, though not with an equally accelerated pace, and is no argument why we should not, at every period of our improvement, avail ourselves of the full extent of the advantages offered to our acceptance—it is no reason why we should not make the very best disposition of our capital, so as to ensure the most abundant return. The land has, as I before said,1 been compared by Mr. Malthus to a great number of machines, all susceptible of continued improvement by the application of capital to them, but yet of very different original qualities and powers. Would it be wise at a great expense to use some of the worst of these machines, when at a less expense we could hire the very best from our neighbours.

  Mr. Malthus thinks that a low money price of corn would not be favourable to the lower classes of society, because the real exchangeable value of labour; that is, its power of commanding the necessaries, conveniences, and luxuries of life, would not be augmented, but diminished by a low money price.1 Some of his observations on this subject are certainly of great weight, but he does not sufficiently allow for the effects of a better distribution of the national capital on the situation of the lower classes. It would be beneficial to them, because the same capital would employ more hands; besides, that the greater profits would lead to further accumulation; and thus would a stimulus be given to population by really high wages, which could not fail for a long time to ameliorate the condition of the labouring classes.

  The effects on the interests of this class, would be nearly the same as the effects of improved machinery, which it is now no longer questioned, has a decided tendency to raise the real wages of labour.2

  Mr. Malthus also observes, “that of the commercial and manufacturing classes, only those who are directly engaged in foreign trade will feel the benefit of the importing system.”3

  If the view which has been taken of rent be correct,—if it rise as general profits fall, and falls as general profits rise,—and if the effect of importing corn is to lower rent, which has been admitted, and ably exemplified by Mr. Malthus himself,—all who are concerned in trade,—all capitalists whatever, whether they be farmers, manufacturers, or merchants, will have a great augmentation of profits. A fall in the price of corn, in consequence of improvements in agriculture or of importation, will lower the exchangeable value of corn only,—the price of no other commodity will be affected. If, then, the price of labour falls, which it must do when the price of corn is lowered, the real profits of all descriptions must rise; and no person will be so materially benefited as the manufacturing and commercial part of society.

  If the demand for home commodities should be diminished, because of the fall of rent on the part of the landlords, it will be increased in a far greater degree by the increased opulence of the commercial classes.

  If restrictions on the importation of corn should take place, I do not apprehend, that we shall lose any part of our foreign trade; on this point, I agree with Mr. Malthus.1 In the case of a free trade in corn, it would be considerably augmented; but the question is not, whether we can retain the same foreign trade—but, whether, in both cases, it will be equally profitable.

  Our commodities would not sell abroad for more or for less in consequence of a free trade, and a cheap price of corn; but the cost of production to our manufacturers would be very different if the price of corn was eighty, or was sixty shillings per quarter; and consequently profits would be augmented by all the cost saved in the production of the exported commodities.

  Mr. Malthus notices an observation, which was first made by Hume,2 that a rise of prices, has a magic effect on industry: he states the effects of a fall to be proportionally depressing.* A rise of prices has been stated to be one of the advantages, to counterbalance the many evils attendant on a depreciation of money, from a real fall in the value of the precious metals, from raising the denomination of the coin, or from the over-issue of paper money. It is said to be beneficial, because it betters the situation of the commercial classes at the expense of those enjoying fixed incomes;—and that it is chiefly in those classes, that the great accumulations are made, and productive industry encouraged.

  A recurrence to a better monetary system, it is said, though highly desirable, tends to give a temporary discouragement to accumulation and industry, by depressing the commercial part of the community, and is the effect of a fall of prices: Mr. Malthus supposes that such an effect will be produced by the fall of the price of corn. If the observation made by Hume were well founded, still it would not apply to the present instance:—for every thing that the manufacturer would have to sell, would be as dear as ever: it is only what he would buy that would be cheap, namely, corn and labour by which his gains would be increased. I must again observe, that a rise in the value of money lowers all things; whereas a fall in the price of corn, only lowers the wages of labour, and therefore raises profits.

  If then the prosperity of the commercial classes, will most certainly lead to accumulation of capital, and the encouragement of productive industry; these can by no means be so surely obtained as by a fall in the price of corn.

  I cannot agree with Mr. Malthus in his approbation of the opinion of Adam Smith, “that no equal quantity of productive labour employed in manufactures, can ever occasion so great a re-production as in agriculture.”1 I suppose that he must have overlooked the term ever in this passage, otherwise the opinion is more consistent with the doctrine of the Economists, than with those which he has maintained; as he has stated, and I think correctly, that in the first settling of a new country, and in every stage of its improvement, there is a portion of its capital employed on the land, for the profits of stock merely, and which yields no rent whatever. Productive labour employed on such land never does in fact afford so great areproduction, as the same productive labour employed in manufactures.

  The difference is not indeed great, and is voluntarily relinquished, on account of the security and respectability which attends the employment of capital on land. In the infancy of society, when no rent is paid, is not the re-production of value in the coarse1 manufactures, and in the implements of husbandry with a given capital, at least as great as the value which the same capital would afford if employed on the land?

  This opinion indeed is at variance with all the general doctrines of Mr. Malthus, which he has so ably maintained in this as well as in all his other publications. In the “Inquiry,”2 speaking of what I consider a similar opinion of Adam Smith, he observes, “I cannot, however, agree with him in thinking that all land which yields food must necessarily yield rent. The land which is successively taken into cultivation in improving countries, may only pay profits and labour. A fair profit on the stock employed, including, of course, the payment of labour, will always be a sufficient inducement to cultivate.” The same motives will also induce some to manufacture goods, and the profits of both in the same stages of society will be nearly the same.

  In the course of these observations, I have often had occasion to insist, that rent never falls without the profits of stock rising. If it suit us to day to import corn rather than grow it, we are solely influenced by the cheaper price. If we import the portion of capital last employed on the land, and which yielded no rent, will be withdrawn; rent will fall and profits rise, and another portion of capital employed on the land will come under the same description of only yielding the usual profits of stock.

  If corn can be imported cheaper than it can be grown on this rather better land, rent will again fall and profits rise, and another and better description of land will now be cultivated for profits only. In every step of our progress, profits of stock increase and rents fall, and more land is abandoned: besides which, the country saves all the difference between the price at which corn can be grown, and the price at which it can be imported, on the quantity we receive from abroad.

  Mr. Malthus has considered, with the greatest ability, the effect of a cheap price of corn on those who contribute to the interest of our enormous debt.1 I most fully concur in many of his conclusions on this part of the subject. The wealth of England would, I am persuaded, be considerably augmented by a great reduction in the price of corn, but the whole money value of that wealth would be diminished. It would be diminished by the whole difference of the money value of the corn consumed,—it would be augmented by the increased exchangeable value of all those commodities which would be exported in exchange for the corn imported. The latter would, however, be very unequal to the former; therefore the money value of the commodities of England would, undoubtedly, be considerably lowered.

  But, though it is true, that the money value of the mass of our commodities would be diminished, it by no means follows, that our annual revenue would fall in the same degree. The advocates for importation ground their opinion of the advantages of it on the conviction that the revenue would not so fall. And, as it is from our revenue that taxes are paid, the burthen might not be really augmented.

  Suppose the revenue of a country to fall from ten to nine millions, whilst the value of money altered in the proportion of ten to eight, such country would have a larger neat revenue, after paying a million from the smaller, than it would have after paying it from the larger sum.

  That the stockholder would receive more in real value than what he contracted for, in the loans of the late years, is also true; but, as the stockholders themselves contribute very largely to the public burthens, and therefore to the payment of the interest which they receive, no inconsiderable proportion of the taxes would fall on them; and, if we estimate at its true value the additional profits made by the commercial class, they would still be great gainers, notwithstanding their really augmented contributions.

  The landlord would be the only sufferer by paying really more, not only without any adequate compensation, but with lowered rents.

  It may indeed be urged, on the part of the stockholder, and those who live on fixed incomes, that they have been by far the greatest sufferers by the war. The value of their revenue has been diminished by the rise in the price of corn, and by the depreciation in the value of paper money, whilst, at the same time, the value of their capital has been very much diminished from the lower price of the funds. They have suffered too from the inroads lately made on the sinking fund, and which, it is supposed, will be still further extended,—a measure of the greatest injustice,—in direct violation of solemn contracts;1 for the sinking fund is as much a part of the contract as the dividend, and, as a source of revenue, utterly at variance with all sound principles. It is to the growth of that fund that we ought to look for the means of carrying on future wars, unless we are prepared to relinquish the funding system altogether. To meddle with the sinking fund, is to obtain a little temporary aid at the sacrifice of a great future advantage. It is reversing the whole system of Mr. Pitt, in the creation of that fund: he proceeded on the conviction, that, for a small present burthen, an immense future advantage would be obtained; and, after witnessing, as we have done, the benefits which have already resulted from his inflexible determination to leave that fund untouched, even when he was pressed by the greatest financial distress, when three per cents. were so low as forty-eight, we cannot, I think, hesitate in pronouncing, that he would not have countenanced, had he still lived, the measures which have been adopted.

  To recur, however, to the subject before me, I shall only further observe, that I shall greatly regret that considerations for any particular class, are allowed to check the progress of the wealth and population of the country. If the interests of the landlord be of sufficient consequence, to determine us not to avail ourselves of all the benefits which would follow from importing corn at a cheap price, they should also influence us in rejecting all improvements in agriculture, and in the implements of husbandry; for it is as certain that corn is rendered cheap, rents are lowered, and the ability of the landlord to pay taxes, is for a time, at least, as much impaired by such improvements, as by the importation of corn. To be consistent then, let us by the same act arrest improvement, and prohibit importation.

  

  Proposals for an Economical and Secure Currency 1816 edition.

  

  Proposals for an Economical and Secure Currency 1816 2nd edition.

  [1 ]An Inquiry into the Nature and Progress of Rent, and the Principles by which it is Regulated, London, Murray, 1815.

  [2 ]The Grounds of an Opinion on the Policy of Restricting the Importation of Foreign Corn. London, Murray, 1815.

  [1 ]Inquiry into ... Rent, pp. 1–2.

  [* ]Mr. Malthus considers, that the surplus of produce obtained in consequence of diminished wages, or of improvements in agriculture, to be one of the causes to raise rent. To me it appears that it will only augment profits.
  
  “The accumulation of capital, beyond the means of employing it on land of the greatest natural fertility, and the greatest advantage of situation, must necessarily lower profits; while the tendency of population to increase beyond the means of subsistance must, after a certain time, lower the wages of labour.
  
  “The expense of production will thus be diminished, but the value of the produce, that is, the quantity of labour, and of the other products of labour besides corn, which it can command instead of diminishing, will be increased.
  
  “There will be an increasing number of people demanding subsistence, and ready to offer their services in any way in which they can be useful. The exchangeable value of food will therefore be in excess above the cost of production, including in this cost the full profits of the stock employed upon the land, according to the actual rate of profits, at the time being. And this excess is rent.”—An Inquiry into the Nature and Progress of Rent, page 18.
  
  In page 19, speaking of Poland, one of the causes of rent is again attributed to cheapness of labour. In page 22 it is said that a fall in the wages of labour, or a reduction in the number of labourers necessary to produce a given effect, in consequence of agricultural improvements, will raise rent.

  [* ]It is not meant, that strictly the rate of profits on agriculture and manufactures will be the same, but that they will bear some proportion to each other. Adam Smith has explained why profits are somewhat less on some employments of capital than on others, according to their security, cleanliness, and respectability, &c. &c.1
  
  What the proportion may be, is of no importance to my argument, as I am only desirous of proving that the profits on agricultural capital cannot materially vary, without occasioning a similar variation in the profits on capital, employed on manufactures and commerce.

  [* ]Profits of stock fall because land equally fertile cannot be obtained, and through the whole progress of society, profits are regulated by the difficulty or facility of procuring food. This is a principle of great importance, and has been almost overlooked in the writings of Political Economists. They appear to think that profits of stock can be raised by commercial causes, independently of the supply of food.

  [1 ]Misprinted ‘in’; corrected by Ricardo in his copy at Gatcombe.

  [* ]In all that I have said concerning the origin and progress of rent, I have briefly repeated, and endeavoured to elucidate the principles which Mr. Malthus has so ably laid down, on the same subject, in his “Inquiry into the Nature and Progress of Rent;” a work abounding in original ideas,—which are useful not only as they regard rent, but as connected with the question of taxation; perhaps, the most difficult and intricate of all the subjects on which Political Economy treats.

  [† ]It is scarcely necessary to observe, that the data on which this table is constructed are assumed, and are probably very far from the truth. They were fixed on as tending to illustrate the principle,—which would be the same, whether the first profits were fifty per cent. or five,—or, whether an additional capital of ten quarters, or of one hundred, were required to obtain the same produce from the cultivation of new land. In proportion as the capital employed on the land, consisted more of fixed capital, and less of circulating capital, would rent advance, and property fall less rapidly.1

  [* ]This would be the effect of a constantly accumulating capital, in a country which refused to import foreign and cheaper corn. But after profits have very much fallen, accumulation will be checked, and capital will be exported to be employed in those countries where food is cheap and profits high. All European colonies have been established with the capital of the mother countries, and have thereby checked accumulation. That part of the population too, which is employed in the foreign carrying trade, is fed with foreign corn. It cannot be doubted, that low profits, which are the inevitable effects of a really high price of corn, tend to draw capital abroad: this consideration ought therefore to be a powerful reason to prevent us from restricting importation.

  [* ]By rent I always mean the remuneration given to the landlord for the use of the original and inherent power of the land. If either the landlord expends capital on his own land, or the capital of a preceding tenant is left upon it at the expiration of his lease, he may obtain what is indeed called a larger rent, but a portion of this is evidently paid for the use of capital. The other portion only is paid for the use of the original power of the land.

  [1 ]Above, p. 11.

  [* ]The low price of corn, caused by improvements in agriculture, would give a stimulus to population, by increasing profits and encouraging accumulation, which would again raise the price of corn and lower profits. But a larger population could be maintained at the same price of corn, the same profits, and the same rents. Improvements in agriculture may then be said to increase profits, and to lower for a time rents.

  [* ]Though the price of all commodities is ultimately regulated by, and is always tending to, the cost of their production, including the general profits of stock, they are all subject, and perhaps corn more than most others, to an accidental price, proceeding from temporary causes.

  [1 ]Shortly after publication Ricardo modified his opinion on this point, and allowed that the prices of other commodities would change owing to ‘the altered value of the raw material in all manufactured goods’. See letter to Malthus, 9 March 1815, below, VI, 179, and cp. Principles, above, I, 117.

  [* ]It has been thought that the price of corn regulates the prices of all other things.1 This appears to me to be a mistake. If the price of corn is affected by the rise or fall of the value of the precious metals themselves, then indeed will the price of commodities be also affected, but they vary, because the value of money varies, not because the value of corn is altered. Commodities, I think, cannot materially rise or fall, whilst money and commodities continue in the same proportions, or rather whilst the cost of production of both estimated in corn continues the same. In the case of taxation, a part of the price is paid for the liberty of using the commodity, and does not constitute its real price.

  [1 ]Inquiry into ... Rent, p. 57.

  [1 ]This was Malthus’s reply to Ricardo’s theory already in March 1814; see below, VI, 104.

  [* ]Mr. Malthus has supplied me with a happy illustration—he has correctly compared “the soil to a great number of machines, all susceptible of continued improvement by the application of capital to them, but yet of very different original qualities and powers.”1 How, I would ask, can profits rise whilst we are obliged to make use of that machine which has the worst original qualities and powers? We cannot abandon the use of it; for it is the condition on which we obtain the food necessary for our population, and the demand for food is by the supposition not diminished—but who would consent to use it if he could make greater profits elsewhere?

  [* ]Excepting when the extension of commerce enables us to obtain food at really cheaper prices.

  [* ]If by foreign commerce, or the discovery of machinery, the commodities consumed by the labourer should become much cheaper, wages would fall; and this, as we have before observed, would raise the profits of the farmer, and therefore, all other profits.

  [1 ]Printed ‘facilities’, here and three lines below. Corrected by Ricardo in his copy at Gatcombe.

  [2 ]Printed ‘are’. Corrected by Ricardo in his copy.

  [* ]This principle is most ably stated by Mr. Malthus in page 42 of “An Inquiry,” &c.

  [† ]It is this latter opinion which is chiefly insisted upon by Mr. Malthus, in his late publication, “The grounds of An Opinion,” &c.1

  [1 ]Omitted by a mistake.

  [* ]As London is to be a depot for foreign corn,1 this store might be very great.

  [1 ]Grounds of an Opinion, pp. 14–15.

  [1 ]Wealth of Nations, Bk. iv, ch. v; Cannan’s ed., vol. ii, p. 28.

  [* ]If it be true, as Mr. Malthus observes,1 that in Ireland there are no manufactures in which capital could be profitably employed, capital would not be withdrawn from the land, and then there would be no loss of agricultural capital. Ireland would, in such case, have the same surplus corn produce, although it would be of less exchangeable value. Her revenue might be diminished; but if she would not, or could not manufacture goods, and would not cultivate the ground, she would have no revenue at all.

  [1 ]ib. p. 30.

  [* ]I by no means agree with Adam Smith,2 or with Mr. Malthus,3 respecting the effects of taxation on the necessaries of life. The former can find no term too severe by which to characterize them. Mr. Malthus is more lenient. They both think that such taxes, incalculably more than any other, tend to diminish capital and production. I do not say that they are the best of taxes, but they do not, I think, subject us to any of the disadvantages of which Adam Smith speaks in foreign trade: nor do they produce effects very different from other taxes. Adam Smith thought that such taxes fell exclusively on the landholder; Mr. Malthus thinks they are divided between the landholder and consumer. It appears to me that they are paid wholly by the consumer.

  [* ]Page 22, Grounds, &c.

  [1 ]Above, p. 24.

  [1 ]Grounds of an Opinion, p. 24.

  [2 ]For Ricardo’s later views on machinery see Principles, ch. xxxi.

  [3 ]Grounds of an Opinion, p. 30.

  [1 ]Grounds of an Opinion, p. 31.

  [2 ]Essay ‘Of Money’, in Political Discourses, 1752, p. 41.

  [* ]Grounds, &c. p. 32.

  [1 ]Wealth of Nations, Bk. ii, ch. v; vol. i, p. 344. Quoted by Malthus, Grounds of an Opinion, p. 35. The italics are Ricardo’s.

  [1 ]Misprinted ‘course’.

  [2 ]Inquiry into...Rent, p. 3, n.

  [1 ]Grounds of an Opinion, pp. 38 ff.

  [1 ]The reference is to Vansittart’s ‘Plan of Finance’ of 1813; see below, pp. 159–60.

  [* ]It is not meant, that strictly the rate of profits on agriculture and manufactures will be the same, but that they will bear some proportion to each other. Adam Smith has explained why profits are somewhat less on some employments of capital than on others, according to their security, cleanliness, and respectability, &c. &c.1
  
  What the proportion may be, is of no importance to my argument, as I am only desirous of proving that the profits on agricultural capital cannot materially vary, without occasioning a similar variation in the profits on capital, employed on manufactures and commerce.

  [† ]It is scarcely necessary to observe, that the data on which this table is constructed are assumed, and are probably very far from the truth. They were fixed on as tending to illustrate the principle,—which would be the same, whether the first profits were fifty per cent. or five,—or, whether an additional capital of ten quarters, or of one hundred, were required to obtain the same produce from the cultivation of new land. In proportion as the capital employed on the land, consisted more of fixed capital, and less of circulating capital, would rent advance, and property fall less rapidly.1

  [* ]It has been thought that the price of corn regulates the prices of all other things.1 This appears to me to be a mistake. If the price of corn is affected by the rise or fall of the value of the precious metals themselves, then indeed will the price of commodities be also affected, but they vary, because the value of money varies, not because the value of corn is altered. Commodities, I think, cannot materially rise or fall, whilst money and commodities continue in the same proportions, or rather whilst the cost of production of both estimated in corn continues the same. In the case of taxation, a part of the price is paid for the liberty of using the commodity, and does not constitute its real price.

  [* ]Mr. Malthus has supplied me with a happy illustration—he has correctly compared “the soil to a great number of machines, all susceptible of continued improvement by the application of capital to them, but yet of very different original qualities and powers.”1 How, I would ask, can profits rise whilst we are obliged to make use of that machine which has the worst original qualities and powers? We cannot abandon the use of it; for it is the condition on which we obtain the food necessary for our population, and the demand for food is by the supposition not diminished—but who would consent to use it if he could make greater profits elsewhere?

  [† ]It is this latter opinion which is chiefly insisted upon by Mr. Malthus, in his late publication, “The grounds of An Opinion,” &c.1

  [* ]As London is to be a depot for foreign corn,1 this store might be very great.

  [* ]If it be true, as Mr. Malthus observes,1 that in Ireland there are no manufactures in which capital could be profitably employed, capital would not be withdrawn from the land, and then there would be no loss of agricultural capital. Ireland would, in such case, have the same surplus corn produce, although it would be of less exchangeable value. Her revenue might be diminished; but if she would not, or could not manufacture goods, and would not cultivate the ground, she would have no revenue at all.

  [* ]I by no means agree with Adam Smith,2 or with Mr. Malthus,3 respecting the effects of taxation on the necessaries of life. The former can find no term too severe by which to characterize them. Mr. Malthus is more lenient. They both think that such taxes, incalculably more than any other, tend to diminish capital and production. I do not say that they are the best of taxes, but they do not, I think, subject us to any of the disadvantages of which Adam Smith speaks in foreign trade: nor do they produce effects very different from other taxes. Adam Smith thought that such taxes fell exclusively on the landholder; Mr. Malthus thinks they are divided between the landholder and consumer. It appears to me that they are paid wholly by the consumer.

  [1]Wealth of Nations, Bk. 1, ch. x, pt. i; Cannan’s ed., vol. 1, pp. 102–20.

  [1]No doubt should read ‘rent advance, and profits fall, less rapidly.’

  [1]See the quotations from Adam Smith and other writers given in Principles, I, 302 ff.

  [1]Inquiry into...Rent, p. 37.

  [1]pp. 17–20.

  [1]This was to be effected by permitting the free import of foreign corn to be bonded and warehoused. See ‘Report from the Select Committee on Petitions relating to the Corn Laws’, 1814, pp. 15–16, Parliamentary Papers, 1813–14, vol. iii; the proposal was subsequently adopted in the Corn Law of 1815.

  [1]Grounds of an Opinion, pp. 25–26.

  [2]Bk. v, ch. ii, pt. ii, art. i; vol. ii, pp. 321–2.

  [3]Inquiry into...Rent, pp. 52–3.

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  4: On Rent in Principles of Political Economy and Taxation [1817/2004]

  David Ricardo, The Works and Correspondence of David Ricardo, ed. Piero Sraffa with the Collaboration of M.H. Dobb (Indianapolis: Liberty Fund, 2005). Vol. 1 Principles of Political Economy and Taxation. Chapter: chapter ii: On Rent

  Accessed from oll.libertyfund.org/title/113/38277 on 2010-02-03

  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.

  ---

  chapter ii

  On Rent

  It remains1 however to be considered, whether the appropriation of land, and the consequent creation of rent, will occasion any variation in the relative value of commodities, independently of the quantity of labour necessary to production. In order to understand this part of the subject, we must enquire into the nature of rent, and the laws by which its rise or fall is regulated.2

  Rent is that portion of the produce of the earth, which is paid to the landlord for the use of the original and indestructible powers of the soil. It is often, however, confounded with the interest and profit of capital, and, in popular language, the term is applied to whatever is annually paid by a farmer to his landlord. If, of two adjoining farms of the same extent, and of the same natural fertility, one had all the conveniences of farming buildings, and, besides, were3 properly drained and manured, and advantageously divided by hedges, fences and walls, while the other had none of these advantages, more remuneration would naturally be paid for the use of one, than for the use of the other; yet in both cases this remuneration would be called rent. But it is evident, that a portion only of the money annually to be paid for the improved farm, would be given for the original and indestructible powers of the soil; the other portion would be paid for the use of the capital which had been employed in ameliorating the quality of the land, and in erecting such buildings as were necessary to secure and preserve the produce. Adam Smith sometimes speaks of rent, in the strict sense to which I am desirous of confining it, but more often in the popular sense, in which the term is usually employed. He tells us, that the demand for timber, and its consequent high price, in the more southern countries of Europe, caused a rent to be paid for forests in Norway, which could before afford no rent.1 Is it not, however, evident, that the person who paid what he thus calls rent, paid it in consideration of the valuable commodity which was then standing on the land, and that he actually repaid himself with a profit, by the sale of the timber? If, indeed, after the timber was removed, any compensation were paid to the landlord for the use of the land, for the purpose of growing timber or any other produce, with a view to future demand, such compensation might justly be called rent, because it would be paid for the productive powers of the land; but in the case stated by Adam Smith, the compensation was paid for the liberty of removing and selling the timber, and not for the liberty of growing it. He speaks also of the rent of coal mines, and of stone quarries,2 to which the same observation applies—that the compensation given for the mine or quarry, is paid for the value of the coal or stone which can be removed from them, and has no connection with the original and indestructible powers of the land. This is a distinction of great importance, in an enquiry concerning rent and profits; for it is found, that the laws which regulate the progress of rent, are widely different from those which regulate the progress of profits, and seldom operate in the same direction. In all improved countries, that which is annually paid to the landlord, partaking of both characters, rent and profit, is sometimes kept stationary by the effects of opposing causes; at other times advances or recedes, as one or the3 other of these causes preponderates. In the future pages of this work, then, whenever I speak of the rent of land, I wish to be understood as speaking of that compensation, which is paid to the owner of land for the use of its original and indestructible powers.1

  On the first settling of a country, in which there is an abundance of rich and fertile land, a very small proportion of which is required to be cultivated for the support of the actual population, or indeed can be cultivated with the capital which the population can command, there will be no rent; for no one would pay for the use of land, when there was an abundant quantity not yet appropriated, and, therefore, at the disposal of whosoever might choose to cultivate it.

  On the common principles of supply and demand, no rent could be paid for such land, for the reason stated why nothing is given for the use of air and water, or for any other of the gifts of nature which exist in boundless quantity. With a given quantity of materials, and with the assistance of the pressure of the atmosphere, and the elasticity of steam, engines may perform work, and abridge human labour to a very great extent; but no charge is made for the use of these natural aids, because they are inexhaustible, and at every man’s disposal. In the same manner the brewer, the distiller, the dyer, make incessant use of the air and water for the production of their commodities; but as the supply is boundless, they bear2 no price.* If all land had the same properties, if it were unlimited in quantity,1 and uniform in quality, no charge could be made for its use, unless where it possessed peculiar advantages of situation. It is only, then, because land is not unlimited in quantity and uniform in quality,2 and because in the progress of population, land of an inferior quality, or less advantageously situated, is called into cultivation, that rent is ever paid for the use of it. When in the progress of society, land of the second degree of fertility is taken into cultivation, rent immediately commences on that of the first quality, and the amount of that rent will depend on the difference in the quality of these two portions of land.

  When land of the third quality is taken into cultivation, rent immediately commences on the second, and it is regulated as before, by the difference in their productive powers. At the same time, the rent of the first quality will rise, for that must always be above the rent of the second, by the difference between the produce which they yield with a given quantity of capital and labour. With every step in the progress of population, which shall oblige a country to have recourse to land of a worse quality, to enable it to raise its supply of food, rent, on all the more fertile land, will rise.

  Thus suppose land—No. 1, 2, 3,—to yield, with an equal employment of capital and labour, a net produce of 100, 90, and 80 quarters of corn. In a new country, where there is an abundance of fertile land compared with the population, and where therefore it is only necessary to cultivate No. 1, the whole net produce will belong to the cultivator, and will be the profits of the stock which he advances. As soon as population had so far increased as to make it necessary to cultivate No. 2, from which ninety quarters only can be obtained after supporting the labourers, rent would commence on No. 1; for either there must be two rates of profit on agricultural capital, or ten quarters, or the value of ten quarters must be withdrawn from the produce of No. 1, for some other purpose. Whether the proprietor of the land, or any other person, cultivated No. 1, these ten quarters would equally constitute rent; for the cultivator of No. 2 would get the same result with his capital, whether he cultivated No. 1, paying ten quarters for rent, or continued to cultivate No. 2, paying no rent. In the same manner it might be shown that when No. 3 is brought into cultivation, the rent of No. 2 must be ten quarters, or the value of ten quarters, whilst the rent of No. 1 would rise to twenty quarters; for the cultivator of No. 3 would have the same profits whether he paid twenty quarters for the rent of No. 1, ten quarters for the rent of No. 2, or cultivated No. 3 free of all rent.

  It often, and, indeed, commonly happens, that before No. 2, 3, 4, or 5, or the inferior lands are cultivated, capital can be employed more productively on those lands which are already in cultivation. It may perhaps be found, that by doubling the original capital employed on No. 1, though the produce will not be doubled, will not be increased by 100 quarters, it may be increased by eighty-five quarters, and that this quantity exceeds what could be obtained by employing the same capital, on land No. 3.

  In such case, capital will be preferably employed on the old land, and will equally create a rent; for rent is always the difference between the produce obtained by the employment of two equal quantities of capital and labour. If, with a capital of 1000l., a tenant obtain 100 quarters of wheat from his land, and by the employment of a second capital of 1000l., he obtain a further return of eighty-five, his landlord would have the power at the expiration of his lease, of obliging him to pay fifteen quarters, or an equivalent value, for additional rent; for there cannot be two rates of profit. If he is satisfied with a diminution of fifteen quarters in the return for his second 1000l., it is because no employment more profitable can be found for it. The common rate of profit would be in that proportion, and if the original tenant refused, some other person would be found willing to give all which exceeded that rate of profit to the owner of the land from which he derived it.

  In this case, as well as in the other, the capital last employed pays no rent. For the greater productive powers of the first 1000l., fifteen quarters is paid for rent, for the employment of the second 1000l. no rent whatever is paid. If a third 1000l. be employed on the same land, with a return of seventy-five quarters, rent will then be paid for the second 1000l., and will be equal to the difference between the produce of these two, or ten quarters; and at the same time the rent of the first 1000l. will rise from fifteen to twenty-five quarters; while the last 1000l. will pay no rent whatever.

  If, then, good land existed in a quantity much more abundant than the production of food for an increasing population required, or if capital could be indefinitely employed without a diminished return on the old land, there could be no rise of rent; for rent invariably proceeds from the employment of an additional quantity of labour with a proportionally less return.

  The most fertile, and most favorably situated, land will be first cultivated, and the exchangeable value of its produce will be adjusted in the same manner as the exchangeable value of all other commodities, by the total quantity of labour necessary in various forms, from first to last, to produce it, and bring it to market. When land of an inferior quality is taken into cultivation, the exchangeable value of raw produce will rise, because more labour is required to produce it.

  The exchangeable value of all commodities, whether they be manufactured, or the produce of the mines, or the produce of land, is always regulated, not by the less quantity of labour that will suffice for their production under circumstances highly favorable, and exclusively enjoyed by those who have peculiar facilities of production; but by the greater quantity of labour necessarily bestowed on their production by those who have no such facilities; by those who continue to produce them under the most unfavorable circumstances; meaning—by the most unfavorable circumstances, the most unfavorable under which the quantity of produce required, renders it necessary to carry on the production.

  Thus, in a charitable institution, where the poor are set to work with the funds of benefactors, the general prices of the commodities, which are the produce of such work, will not be governed by the peculiar facilities afforded to these workmen, but by the common, usual, and natural difficulties, which every other manufacturer will have to encounter. The manufacturer enjoying none of these facilities might indeed be driven altogether from the market, if the supply afforded by these favored workmen were equal to all the wants of the community; but if he continued the trade, it would be only on condition that he should derive from it the usual and general rate of profits on stock; and that could only happen when his commodity sold for a price proportioned to the quantity of labour bestowed on its production.*

  It is true, that on the best land, the same produce would still be obtained with the same labour as before, but its value would be enhanced in consequence of the diminished returns obtained by those who employed fresh labour and stock on the less fertile land. Notwithstanding, then, that the advantages of fertile over inferior lands are in no case lost, but only transferred from the cultivator, or consumer, to the landlord, yet, since more labour is required on the inferior lands, and since it is from such land only that we are enabled to furnish ourselves with the additional supply of raw produce, the comparative value of that produce will continue permanently above its former level, and make it exchange for more hats, cloth, shoes, &c. &c. in the production of which no such additional quantity of labour is required.

  The reason then, why raw produce rises in comparative value, is because more labour is employed in the production of the last portion obtained, and not because a rent is paid to the landlord. The value of corn is regulated by the quantity of labour bestowed on its production on that quality of land, or with that portion of capital, which pays no rent. Corn is not high because a rent is paid, but a rent is paid because corn is high; and it has been justly observed,1 that no reduction would take place in the price of corn, although landlords should forego the whole of their rent. Such a measure would only enable some farmers to live like gentlemen, but would not diminish the quantity of labour necessary to raise raw produce on the least productive land in cultivation.

  Nothing is more common than to hear of the advantages which the land possesses over every other source of useful produce, on account of the surplus which it yields in the form of rent. Yet when land is most abundant, when most productive, and most fertile, it yields no rent; and it is only when its powers decay, and less is yielded in return for labour, that a share of the original produce of the more fertile portions is set apart for rent. It is singular that this quality in the land, which should have been noticed as an imperfection, compared with the natural agents by which manufacturers are assisted, should have been pointed out as constituting its peculiar preeminence. If air, water, the elasticity of steam, and the pressure of the atmosphere, were of various qualities; if they could be appropriated, and each quality existed only in moderate abundance, they, as well as the land, would afford a rent, as the successive qualities were brought into use. With every worse quality employed, the value of the commodities in the manufacture of which they were used, would rise, because equal quantities of labour would be less productive. Man would do more by the sweat of his brow, and nature perform less; and the land would be no longer pre-eminent for its limited powers.

  If the surplus produce which land affords in the form of rent be an advantage, it is desirable that, every year, the machinery newly constructed should be less efficient than the old, as that would undoubtedly give a greater exchangeable value to the goods manufactured, not only by that machinery but by all the other machinery in the kingdom; and a rent would be paid to all those who possessed the most productive machinery.*

  The rise of rent is always the effect of the increasing wealth of the country, and of the difficulty of providing food for its augmented population. It is a symptom, but it is never a cause of wealth; for wealth often increases most rapidly while rent is either stationary, or even falling. Rent increases most rapidly, as the disposable land decreases in its productive powers. Wealth increases most rapidly in those countries where the disposable land is most fertile, where importation is least restricted, and where through agricultural improvements, productions can be multiplied without any increase in the proportional quantity of labour, and where consequently the progress of rent is slow.

  If the high price of corn were the effect, and not the cause of rent, price would be proportionally influenced as rents were high or low, and rent would be a component part of price. But that corn which is produced by the greatest quantity of labour is the regulator of the price of corn; and rent does not and cannot enter in the least degree as a component part of its price.* Adam Smith, therefore, cannot be correct in supposing that the original rule which regulated the exchangeable value of commodities, namely, the comparative quantity of labour by which they were produced, can be at all altered by the appropriation of land and the payment of rent.1 Raw material enters into the composition of most commodities, but the value of that raw material, as well as corn, is regulated by the productiveness of the portion of capital last employed on the land, and paying no rent; and therefore rent is not a component part of the price of commodities.

  We have been hitherto considering the effects of the natural progress of wealth and population on rent, in a country in which the land is of variously productive powers; and we have seen, that with every portion of additional capital which it becomes necessary to employ on the land with a less productive return, rent would rise. It follows from the same principles, that any circumstances in the society which should make it unnecessary to employ the same amount of capital on the land, and which should therefore make the portion last employed more productive, would lower rent. Any great reduction in the capital of a country, which should materially diminish the funds destined for the maintenance of labour, would naturally have this effect. Population regulates itself by the funds which are to employ it, and therefore always increases or diminishes with the increase or diminution of capital. Every reduction of capital is therefore necessarily followed by a less effective demand for corn, by a fall of price, and by diminished cultivation. In the reverse order to that in which the accumulation of capital raises rent, will the diminution of it lower rent. Land of a less2 unproductive quality will be in succession relinquished, the exchangeable value of produce will fall, and land of a superior quality will be the land last cultivated, and that which will then pay no rent.

  The same effects may however be produced, when the wealth and population of a country are increased, if that increase is accompanied by such marked improvements in agriculture, as shall have the same effect of diminishing the necessity of cultivating the poorer lands, or of expending the same amount of capital on the cultivation of the more fertile portions.

  If a million of quarters of corn be necessary for the support of a given population, and it be raised on land of the qualities of No. 1, 2, 3; and if an improvement be afterwards discovered by which it can be raised on No. 1 and 2, without employing No. 3, it is evident that the immediate effect must be a fall of rent; for No. 2, instead of No. 3, will then be cultivated without paying any rent; and the rent of No. 1, instead of being the difference between the produce of No. 3 and No. 1, will be the difference only between No. 2 and 1. With the same population, and no more, there can be no demand for any additional quantity of corn; the capital and labour employed on No. 3 will be devoted to the production of other commodities desirable to the community, and can have no effect in raising rent, unless the raw material from which they are made cannot be obtained without employing capital less advantageously on the land, in which case No. 3 must again be cultivated.

  It is undoubtedly true, that the fall in the relative price of raw produce, in consequence of the improvement in agriculture, or rather in consequence of less labour being bestowed on its production, would naturally lead to increased accumulation; for the profits of stock would be greatly augmented. This accumulation would lead to an increased demand for labour, to higher wages, to an increased population, to a further demand for raw produce, and to an increased cultivation. It is only, however, after the increase in the population, that rent would be as high as before; that is to say, after No. 3 was taken into cultivation. A considerable period would have elapsed, attended with a positive diminution of rent.

  But improvements in agriculture are of two kinds: those which increase the productive powers of the land, and those which enable us, by improving our machinery,1 to obtain its produce with less labour. They both lead to a fall in the price of raw produce; they both affect rent, but they do not affect2 it equally. If they did not occasion a fall in the price of raw produce, they would not be improvements; for it is the essential quality of an improvement to diminish the quantity of labour before required to produce a commodity; and this diminution cannot take place without a fall of its price or relative value.

  The improvements which increase3 the productive powers of the land, are such as the more skilful rotation of crops, or the better choice of manure. These improvements absolutely enable us to obtain the same produce from a smaller quantity of land. If, by the introduction of a course of turnips, I can feed my sheep besides raising my corn, the land on which the sheep were before fed becomes unnecessary, and the same quantity of raw produce is raised by the employment of a less quantity of land. If I discover a manure which will enable me to make a piece of land produce 20 per cent. more corn, I may withdraw at least a portion of my capital from the most unproductive part of my farm. But, as I4 before observed, it is not necessary that land should be thrown out of cultivation, in order to reduce rent: to produce this effect, it is sufficient that successive portions of capital are employed on the same land with different results, and that the portion which gives the least result should be withdrawn. If, by the introduction of the turnip husbandry, or by the use of a more invigorating manure, I can obtain the same produce with less capital, and without disturbing the difference between the productive powers of the successive portions of capital, I shall lower rent; for a different and more productive portion will be that which will form the standard from which every other will be reckoned. If, for example, the successive portions of capital yielded 100, 90, 80, 70; whilst I employed these four portions, my rent would be 60, or the difference between

  70 and 100 = 30	whilst the produce would be 340	100
  70 and 90 = 20			90
  70 and 80 = 10			80
  60			70
  			340

  and while I employed these portions, the rent would remain the same, although the produce of each should have an equal augmentation. If, instead of 100, 90, 80, 70, the produce should be increased to 125, 115, 105, 95, the rent would still be 60, or the difference between

  95 and 125 = 30	whilst the produce would be increased to 440	125
  95 and 125 = 20			115
  95 and 125 = 10			105
  60			95
  			440

  But with such an increase of produce, without an increase of demand,* there could be no motive for employing so much capital on the land; one portion would be withdrawn, and consequently the last portion of capital would yield 105 instead of 95, and rent would fall to 30, or the difference between

  1 Ed. 1 ‘would’.
  105 and 125 = 20	whilst the produce will1 be still adequate to the wants of the population, for it would be 345 quarters, or	125
  105 and 115 = 10			115
  30			105
  			345

  the demand being only for 340 quarters.—But there are improvements which may lower the relative value of produce without lowering the corn rent, though they will lower the money rent of land. Such improvements do not increase the productive powers of the land; but they enable us to obtain its produce with less labour. They are rather directed to the formation of the capital applied to the land, than to the cultivation of the land itself. Improvements in agricultural implements, such as the plough and the thrashing machine, economy in the use of horses employed in husbandry, and a better knowledge of the veterinary art, are of this nature. Less capital, which is the same thing as less labour, will be employed on the land; but to obtain the same produce, less land cannot be cultivated. Whether improvements of this kind, however, affect corn rent, must depend on the question, whether the difference between the produce obtained by the employment of different portions of capital be increased, stationary, or diminished. If four portions of capital, 50, 60, 70, 80, be employed on the land, giving each the same results, and any improvement in the formation of such capital should enable me to withdraw 5 from each, so that they should be 45, 55, 65, and 75, no alteration would take place in the corn rent; but if the improvements were such as to enable me to make the whole saving on that portion of capital,2 which is least productively employed, corn rent would immediately fall, because the difference between the capital most productive, and the capital least productive, would be diminished; and it is this difference which constitutes rent.

  Without multiplying instances, I hope enough has been said to show, that whatever diminishes the inequality in the produce obtained from successive portions of capital employed on the same or on new land, tends to lower rent; and that whatever increases that inequality, necessarily produces an opposite effect, and tends to raise it.

  In speaking of the rent of the landlord, we have rather considered it as the proportion of the produce,1 obtained with a given capital on any given farm, without any reference to its exchangeable value; but since the same cause, the difficulty of production, raises the exchangeable value of raw produce, and raises also the proportion of raw produce paid to the landlord for rent, it is obvious that the landlord is doubly benefited by difficulty of production. First he obtains a greater share, and secondly the commodity in which he is paid is of greater value.*

  [1 ]Cp. above, p. 22–3, end of n. 3.

  [2 ]In ed. 1 this and the next paragraph are not separated.

  [3 ]Eds. 1–2 ‘buildings, were, besides,’.

  [1 ]Bk. 1, ch. xi, pt. ii; vol. 1, p. 164.

  [2 ]ib. vol. 1, pp. 163, 167.

  [3 ]Eds. 1–2 do not contain ‘the’.

  [1 ]Cp. the ‘original and inherent power of the land’ in Essay on Profits, below, IV, 18, n. The definition of rent is extended below, p. 261, n., to include the remuneration paid to the landlord for the use of all ‘indestructible powers’ of land, whether original or not.

  [2 ]Ed. 1 ‘it bears’.

  [* ]“The earth, as we have already seen, is not the only agent of nature which has a productive power; but it is the only one, or nearly so, that one set of men take to themselves, to the exclusion of others; and of which, consequently, they can appropriate the benefits. The waters of rivers, and of the sea, by the power which they have of giving movement to our machines, carrying our boats, nourishing our fish, have also a productive power; the wind which turns our mills, and even the heat of the sun, work for us; but happily no one has yet been able to say, the ‘wind and the sun are mine, and the service which they render must be paid for.’”—Economie Politique, par J. B. Say, vol. ii. p. 124.

  [1 ]Eds. 1–2 ‘boundless in quantity’.

  [2 ]Ed. 1 ‘It is only then because land is of different qualities with respect to its productive powers’. Ed. 2 is uniform with ed. 3, except that it has ‘boundless’ in place of ‘unlimited’.

  [* ]Has not M. Say forgotten, in the following passage, that it is the cost of production which ultimately regulates price? “The produce of labour employed on the land has this peculiar property, that it does not become more dear by becoming more scarce, because population always diminishes at the same time that food diminishes, and consequently the quantity of these products demanded, diminishes at the same time as the quantity supplied. Besides, it is not observed that corn is more dear in those places where there is plenty of uncultivated land, than in completely cultivated countries. England and France were much more imperfectly cultivated in the middle ages than they are now; they produced much less raw produce; nevertheless from all that we can judge by a comparison with the value of other things, corn was not sold at a dearer price. If the produce was less, so was the population; the weakness of the demand compensated the feebleness of the supply.” Vol. ii. 338. M. Say being impressed with the opinion that the price of commodities is regulated by the price of labour, and justly supposing that charitable institutions of all sorts tend to increase the population beyond what it otherwise would be, and therefore to lower wages, says, “I suspect that the cheapness of the goods, which come from England, is partly caused by the numerous charitable institutions which exist in that country.” vol. ii. 277. This is a consistent opinion in one who maintains that wages regulate price.

  [1 ]See Malthus’s Inquiry into the Nature and Progress of Rent, 1815, p. 57.

  [* ]“In agriculture too,” says Adam Smith, “nature labours along with man; and though her labour costs no expense, its produce has its value, as well as that of the most expensive workman.” The labour of nature is paid, not because she does much, but because she does little. In proportion as she becomes niggardly in her gifts, she exacts a greater price for her work. Where she is munificently beneficent, she always works gratis. “The1 labouring cattle employed in agriculture, not only occasion, like the workmen in manufactures, the reproduction of a value equal to their own consumption, or to the capital which employs them, together with its owner’s profits, but of a much greater value. Over and above the capital of the farmer and all its profits, they regularly occasion the reproduction of the rent of the landlord. This rent may be considered as the produce of those powers of nature, the use of which the landlord lends to the farmer. It is greater or smaller according to the supposed extent of those powers, or in other words, according to the supposed natural or improved fertility of the land. It is the work of nature which remains, after deducting or compensating every thing which can be regarded as the work of man. It is seldom less than a fourth, and frequently more than a third of the whole produce. No equal quantity of productive labour employed in manufactures, can ever occasion so great a reproduction. In them nature does nothing, man does all; and the reproduction must always be in proportion to the strength of the agents that occasion it. The capital employed in agriculture, therefore, not only puts into motion a greater quantity of productive labour than any equal capital employed in manufactures, but in proportion too, to the quantity of the productive labour which it employs, it adds a much greater value to the annual produce of the land and labour of the country, to the real wealth and revenue of its inhabitants. Of all the ways in which a capital can be employed, it is by far the most advantageous to the society.”—Book II. chap. v. p. 15.2
  
  Does nature nothing for man in manufactures? Are the powers of wind and water, which move our machinery, and assist navigation, nothing? The pressure of the atmosphere and the elasticity of steam, which enable us to work the most stupendous engines—are they not the gifts of nature? to say nothing of the effects of the matter of heat in softening and melting metals, of the decomposition of the atmosphere in the process of dyeing3 and fermentation. There is not a manufacture which can be mentioned, in which nature does not give her assistance to man, and give it too, generously and gratuitously.
  
  In remarking on the passage which I have copied from Adam Smith, Mr. Buchanan observes, “I have endeavoured to show, in the observations on productive and unproductive labour, contained in the fourth volume, that agriculture adds no more to the national stock than any other sort of industry. In dwelling on the reproduction of rent as so great an advantage to society, Dr. Smith does not reflect that rent is the effect of high price, and that what the landlord gains in this way, he gains at the expense of the community at large. There is no absolute gain to the society by the reproduction of rent; it is only one class profiting at the expense of another class. The notion1 of agriculture yielding a produce, and a rent in consequence, because nature concurs with human industry in the process of cultivation, is a mere fancy. It is not from the produce, but from the price at which the produce is sold, that the rent is derived; and this price is got not because nature assists in the production, but because it is the price which suits the consumption to the supply.”2

  [* ]The clearly understanding this principle is, I am persuaded, of the utmost importance to the science of political economy.3

  [1 ]For Adam Smith’s ‘supposition’ (not previously referred to in ed. 3), see p. 22–3, n. 3.

  [2 ]Should probably read ‘a less and less’, as the sense requires. This may indeed have been the reading in the copy sent to the printer, as an abnormally wide spacing of the next line in ed. 1 indicates that some letters were removed after the type had been set.

  [1 ]Ed. 1 does not contain ‘, by improving our machinery,’.

  [2 ]Misprinted ‘effect’ in ed. 3.

  [3 ]Misprinted ‘increased’ in eds. 2–3.

  [4 ]Ed. 1 ‘as I have’.

  [* ]I hope I am not understood as undervaluing the importance of all sorts of improvements in agriculture to landlords—their immediate effect is to lower rent; but as they give a great stimulus to population, and at the same time enable us to cultivate poorer lands, with less labour, they are ultimately of immense advantage to landlords. A period however must elapse, during which they are positively injurious to him.1

  [2 ]Ed. 1 ‘on the largest portion of capital, that portion’.

  [1 ]Eds. 1–2 read ‘of the whole produce,’ and do not contain ‘obtained with a given capital on any given farm,’. On the question of rent as a proportion (with which this correction and those on p. 49, n. 1 above and p. 402, n. 4 below are concerned) see Notes on Malthus, below, II, 196–8.

  [* ]To make this obvious, and to show the degrees in which corn and money rent will vary, let us suppose that the labour of ten men will, on land of a certain quality, obtain 180 quarters of wheat, and its value to be 4l. per quarter, or 720l.; and that the labour of ten additional men will, on the same or any other land, produce only 170 quarters in addition; wheat would rise from 4l. to 4l. 4s. 8d. for 170 : 180 :: 4l.:4l. 4s. 8d.; or, as in the production of 170 quarters, the labour of 10 men is necessary in one case, and only of 9.44 in the other, the rise would be as 9.44 to 10, or as 4l. to 4l. 4s. 8d. If 10 men be further employed, and the return be

  160,	the price will rise to	£4	10	0
  150,		4	16	0
  140,		5	2	10

  
  
  Now if no rent was paid for the land which yielded 180 quarters, when corn was at 4l. per quarter, the value of 10 quarters would be paid as rent when only 170 could be procured, which, at 4l. 4s. 8d. would be 42l. 7s. 6d.

  20 qrs.	when	160	were produced, which at	£4	10	0	would be	£90	0	0
  30 qrs.		150		4	16	0		144	0	0
  40 qrs.		140		5	2	10		205	13	4

  1 Ed. 1 has here in addition ‘then’.
  	100		100
  Corn rent1 would increase	200	and money rent in the	212
  in the proportion of	300	proportion of	340
  	400		485

  [* ]“In agriculture too,” says Adam Smith, “nature labours along with man; and though her labour costs no expense, its produce has its value, as well as that of the most expensive workman.” The labour of nature is paid, not because she does much, but because she does little. In proportion as she becomes niggardly in her gifts, she exacts a greater price for her work. Where she is munificently beneficent, she always works gratis. “The1 labouring cattle employed in agriculture, not only occasion, like the workmen in manufactures, the reproduction of a value equal to their own consumption, or to the capital which employs them, together with its owner’s profits, but of a much greater value. Over and above the capital of the farmer and all its profits, they regularly occasion the reproduction of the rent of the landlord. This rent may be considered as the produce of those powers of nature, the use of which the landlord lends to the farmer. It is greater or smaller according to the supposed extent of those powers, or in other words, according to the supposed natural or improved fertility of the land. It is the work of nature which remains, after deducting or compensating every thing which can be regarded as the work of man. It is seldom less than a fourth, and frequently more than a third of the whole produce. No equal quantity of productive labour employed in manufactures, can ever occasion so great a reproduction. In them nature does nothing, man does all; and the reproduction must always be in proportion to the strength of the agents that occasion it. The capital employed in agriculture, therefore, not only puts into motion a greater quantity of productive labour than any equal capital employed in manufactures, but in proportion too, to the quantity of the productive labour which it employs, it adds a much greater value to the annual produce of the land and labour of the country, to the real wealth and revenue of its inhabitants. Of all the ways in which a capital can be employed, it is by far the most advantageous to the society.”—Book II. chap. v. p. 15.2
  
  Does nature nothing for man in manufactures? Are the powers of wind and water, which move our machinery, and assist navigation, nothing? The pressure of the atmosphere and the elasticity of steam, which enable us to work the most stupendous engines—are they not the gifts of nature? to say nothing of the effects of the matter of heat in softening and melting metals, of the decomposition of the atmosphere in the process of dyeing3 and fermentation. There is not a manufacture which can be mentioned, in which nature does not give her assistance to man, and give it too, generously and gratuitously.
  
  In remarking on the passage which I have copied from Adam Smith, Mr. Buchanan observes, “I have endeavoured to show, in the observations on productive and unproductive labour, contained in the fourth volume, that agriculture adds no more to the national stock than any other sort of industry. In dwelling on the reproduction of rent as so great an advantage to society, Dr. Smith does not reflect that rent is the effect of high price, and that what the landlord gains in this way, he gains at the expense of the community at large. There is no absolute gain to the society by the reproduction of rent; it is only one class profiting at the expense of another class. The notion1 of agriculture yielding a produce, and a rent in consequence, because nature concurs with human industry in the process of cultivation, is a mere fancy. It is not from the produce, but from the price at which the produce is sold, that the rent is derived; and this price is got not because nature assists in the production, but because it is the price which suits the consumption to the supply.”2

  [* ]The clearly understanding this principle is, I am persuaded, of the utmost importance to the science of political economy.3

  [* ]I hope I am not understood as undervaluing the importance of all sorts of improvements in agriculture to landlords—their immediate effect is to lower rent; but as they give a great stimulus to population, and at the same time enable us to cultivate poorer lands, with less labour, they are ultimately of immense advantage to landlords. A period however must elapse, during which they are positively injurious to him.1

  [1]Adam Smith actually says ‘The labourers and’. There are other minor inaccuracies in the quotation.

  [2]Cannan’s ed., vol. i, pp. 343–4. The italics are Ricardo’s.

  [3]Ed. 3 misprints ‘dying’.

  [1]Misprinted ‘motion’ in all eds. of Ricardo.

  [2]Buchanan’s ed. of the Wealth of Nations, vol. ii, p. 55, note.

  [3]Ed. 1 does not contain this note.

  [1]Eds. 1–2 do not contain this note; it was added, with other similar passages elsewhere, as a reply to Malthus’s criticisms (below, II, 118), but Ricardo had already stated in the Essay on Profits (below, IV, 19), that the fall of rent would be temporary; cp. also, for ed. 1, above, pp. 79–80 and for ed. 2, below, p. 412.

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  5: On Foreign Trade in Principles of Political Economy and Taxation [1817/2004]

  David Ricardo, The Works and Correspondence of David Ricardo, ed. Piero Sraffa with the Collaboration of M.H. Dobb (Indianapolis: Liberty Fund, 2005). Vol. 1 Principles of Political Economy and Taxation. Chapter: chapter vii: On Foreign Trade

  Accessed from oll.libertyfund.org/title/113/38287 on 2010-02-03

  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.

  ---

  chapter vii

  On Foreign Trade

  No extension of foreign trade will immediately increase the amount of value in a country, although it will very powerfully contribute to increase the mass of commodities, and therefore the sum of enjoyments. As the value of all foreign goods is measured by the quantity of the produce of our land and labour, which is given in exchange for them, we should have no greater value, if by the discovery of new markets, we obtained double the quantity of foreign goods in exchange for a given quantity of our’s. If by the purchase of English goods to the amount of 1000l., a merchant can obtain a quantity of foreign goods, which he can sell in the English market for 1,200l., he will obtain 20 per cent. profit by such an employment of his capital; but neither his gains, nor the value of the commodities imported, will be increased or diminished by the greater or smaller quantity of foreign goods obtained. Whether, for example, he imports twenty-five or fifty pipes of wine, his interest can be no way affected, if at one time the twenty-five pipes, and at another the fifty pipes, equally sell for 1,200l. In either case his profit will be limited to 200l., or 20 per cent. on his capital; and in either case the same value will be imported into England. If the fifty pipes sold for more than 1,200l., the profits of this individual merchant would exceed the general rate of profits, and capital would naturally flow into this advantageous trade, till the fall of the price of wine had brought every thing to the former level.

  It has indeed been contended, that the great profits which are sometimes made by particular merchants in foreign trade, will elevate the general rate of profits in the country, and that the abstraction of capital from other employments, to partake of the new and beneficial foreign commerce, will raise prices generally, and thereby increase profits. It has been said, by high authority, that less capital being necessarily devoted to the growth of corn, to the manufacture of cloth, hats, shoes, &c. while the demand continues the same, the price of these commodities will be so increased, that the farmer, hatter, clothier, and shoemaker, will have an increase of profits, as well as the foreign merchant.*

  They who hold this argument agree with me, that the profits of different employments have a tendency to conform to one another; to advance and recede together. Our variance consists in this: They contend, that the equality of profits will be brought about by the general rise of profits; and I am of opinion, that the profits of the favoured trade will speedily subside to the general level.

  For, first, I deny that less capital will necessarily be devoted to the growth of corn, to the manufacture of cloth, hats, shoes, &c. unless the demand for these commodities be diminished; and if so, their price will not rise. In the purchase of foreign commodities, either the same, a larger, or a less portion of the produce of the land and labour of England will be employed. If the same portion be so employed, then will the same demand exist for cloth, shoes, corn, and hats, as before, and the same portion of capital will be devoted to their production. If, in consequence of the price of foreign commodities being cheaper, a less portion of the annual produce of the land and labour of England is employed in the purchase of foreign commodities, more will remain for the purchase of other things. If there be a greater demand for hats, shoes, corn, &c. than before, which there may be, the consumers of foreign commodities having an additional portion of their revenue disposable, the capital is also disposable with which the greater value of foreign commodities was before purchased; so that with the increased demand for corn, shoes, &c. there exists also the means of procuring an increased supply, and therefore neither prices nor profits can permanently rise. If more of the produce of the land and labour of England be employed in the purchase of foreign commodities, less can be employed in the purchase of other things, and therefore fewer hats, shoes, &c. will be required. At the same time that capital is liberated from the production of shoes, hats, &c. more must be employed in manufacturing those commodities with which foreign commodities are purchased; and consequently in all cases the demand for foreign and home commodities together, as far as regards value, is limited by the revenue and capital of the country. If one increases, the other must diminish. If the quantity of wine, imported1 in exchange for the same quantity of English commodities, be doubled, the people of England can either consume double the quantity of wine that they did before, or the same quantity of wine and a greater quantity of English commodities. If my revenue had been 1000l., with which I purchased annually one pipe of wine for 100l. and a certain quantity of English commodities for 900l.; when wine fell to 50l. per pipe, I might lay out the 50l. saved, either in the purchase of an additional pipe of wine, or in the purchase of more English commodities. If I bought more wine, and every wine-drinker did the same, the foreign trade would not be in the least disturbed; the same quantity of English commodities would be exported in exchange for wine, and we should receive double the quantity, though not double the value of wine. But if I, and others, contented ourselves with the same quantity of wine as before, fewer English commodities would be exported, and the wine-drinkers might either consume the commodities which were before exported, or any others for which they had an inclination. The capital required for their production would be supplied by the capital liberated from the foreign trade.

  There are two ways in which capital may be accumulated: it may be saved either in consequence of increased revenue, or of diminished consumption. If my profits are raised from 1000l. to 1200l. while my expenditure continues the same, I accumulate annually 200l. more than I did before. If I save 200l. out of my expenditure, while my profits continue the same, the same effect will be produced; 200l. per annum will be added to my capital. The merchant who imported wine after profits had been raised from 20 per cent. to 40 per cent., instead of purchasing his English goods for 1000l. must purchase them for 857l. 2s. 10d., still selling the wine which he imports in return for those goods for 1200l.; or, if he continued to purchase his English goods for 1000l. must raise the price of his wine to 1400l.; he would thus obtain 40 instead of 20 per cent. profit on his capital; but if, in consequence of the cheapness of all the commodities on which his revenue was expended, he and all other consumers could save the value of 200l. out of every 1000l. they before expended, they would more effectually add to the real wealth of the country; in one case, the savings would be made in consequence of an increase of revenue, in the other, in consequence of diminished expenditure.

  If, by the introduction of machinery, the generality of the commodities on which revenue was expended fell 20 per cent. in value, I should be enabled to save as effectually as if my revenue had been raised 20 per cent.; but in one case the rate of profits is stationary, in the other it is raised 20 per cent.—If, by the introduction of cheap foreign goods, I can save 20 per cent. from my expenditure, the effect will be precisely the same as if machinery had lowered the expense of their production, but profits would not be raised.

  It is not, therefore, in consequence of the extension of the market that the rate of profit1 is raised, although such extension may be equally efficacious in increasing the mass of commodities, and may thereby enable us to augment the funds destined for the maintenance of labour, and the materials on which labour may be employed. It is quite as important to the happiness of mankind, that our enjoyments should be increased by the better distribution of labour, by each country producing those commodities for which by its situation, its climate, and its other natural or artificial advantages, it is adapted, and by their exchanging them for the commodities of other countries, as that they should be augmented by a rise in the rate of profits.

  It has been my endeavour to shew throughout this work, that the rate of profits can never be increased but by a fall in wages, and that there can be no permanent fall of wages but in consequence of a fall of the necessaries on which wages are expended. If, therefore, by the extension of foreign trade, or by improvements in machinery, the food and necessaries of the labourer can be brought to market at a reduced price, profits will rise. If, instead of growing our own corn, or manufacturing the clothing and other necessaries of the labourer, we discover a new market from which we can supply ourselves with these commodities at a cheaper price, wages will fall and profits rise; but if the commodities obtained at a cheaper rate, by the extension of foreign commerce, or by the improvement of machinery, be exclusively the commodities consumed by the rich, no alteration will take place in the rate of profits. The rate of wages would not be affected, although wine, velvets, silks, and other expensive commodities should fall 50 per cent., and consequently profits would continue unaltered.

  Foreign trade, then, though highly beneficial to a country, as it increases the amount and variety of the objects on which revenue may be expended, and affords, by the abundance and cheapness of commodities, incentives to saving, and to the accumulation of capital, has no tendency to raise the profits of stock, unless the commodities imported be of that description on which the wages of labour are expended.

  The remarks which have been made respecting foreign trade, apply equally to home trade. The rate of profits is never increased by a better distribution of labour, by the invention of machinery, by the establishment of roads and canals, or by any means of abridging labour either in the manufacture or in the conveyance of goods. These are causes which operate on price, and never fail to be highly beneficial to consumers; since they enable them with the same labour, or with the value of the produce of the same labour, to obtain in exchange a greater quantity of the commodity to which the improvement is applied; but they have no effect whatever on profit. On the other hand, every diminution in the wages of labour raises profits, but produces no effect on the price of commodities. One is advantageous to all classes, for all classes are consumers; the other is beneficial only to producers; they gain more, but every thing remains at its former price. In the first case they get the same as before; but every thing on which their gains are expended, is diminished in exchangeable value.

  The same rule which regulates the relative value of commodities in one country, does not regulate the relative value of the commodities exchanged between two or more countries.

  Under a system of perfectly free commerce, each country naturally devotes its capital and labour to such employments as are most beneficial to each. This pursuit of individual advantage is admirably connected with the universal good of the whole. By stimulating industry, by rewarding ingenuity, and by using most efficaciously the peculiar powers bestowed by nature, it distributes labour most effectively and most economically: while, by increasing the general mass of productions, it diffuses general benefit, and binds together by one common tie of interest and intercourse, the universal society of nations throughout the civilized world. It is this principle which determines that wine shall be made in France and Portugal, that corn shall be grown in America and Poland, and that hardware and other goods shall be manufactured in England.

  In one and the same country, profits are, generally speaking, always on the same level; or differ only as the employment of capital may be more or less secure and agreeable. It is not so between different countries. If the profits of capital employed in Yorkshire, should exceed those of capital employed in London, capital would speedily move from London to Yorkshire, and an equality of profits would be effected; but if in consequence of the diminished rate of production in the lands of England, from the increase of capital and population, wages should rise, and profits fall, it would not follow that capital and population would necessarily move from England to Holland, or Spain, or Russia, where profits might be higher.

  If Portugal had no commercial connexion with other countries, instead of employing a great part of her capital and industry in the production of wines, with which she purchases for her own use the cloth and hardware of other countries, she would be obliged to devote a part of that capital to the manufacture of those commodities, which she would thus obtain probably inferior in quality as well as quantity.

  The quantity of wine which she shall give in exchange for the cloth of England, is not determined by the respective quantities of labour devoted to the production of each, as it would be, if both commodities were manufactured in England, or both in Portugal.

  England may be so circumstanced, that to produce the cloth may require the labour of 100 men for one year; and if she attempted to make the wine, it might require the labour of 120 men for the same time. England would therefore find it her interest to import wine, and to purchase it by the exportation of cloth.

  To produce the wine in Portugal, might require only the labour of 80 men for one year, and to produce the cloth in the same country, might require the labour of 90 men for the same time. It would therefore be advantageous for her to export wine in exchange for cloth. This exchange might even take place, notwithstanding that the commodity imported by Portugal could be produced there with less labour than in England. Though she could make the cloth with the labour of 90 men, she would import it from a country where it required the labour of 100 men to produce it, because it would be advantageous to her rather to employ her capital in the production of wine, for which she would obtain more cloth from England, than she could produce by diverting a portion of her capital from the cultivation of vines to the manufacture of cloth.

  Thus England would give the produce of the labour of 100 men, for the produce of the labour of 80. Such an exchange could not take place between the individuals of the same country. The labour of 100 Englishmen cannot be given for that of 80 Englishmen, but the produce of the labour of 100 Englishmen may be given for the produce of the labour of 80 Portuguese, 60 Russians, or 120 East Indians. The difference in this respect, between a single country and many, is easily accounted for, by considering the difficulty with which capital moves from one country to another, to seek a more profitable employment, and the activity with which it invariably passes from one province to another in the same country.*

  It would undoubtedly be advantageous to the capitalists of England, and to the consumers in both countries, that under such circumstances, the wine and the cloth should both be made in Portugal, and therefore that the capital and labour of England employed in making cloth, should be removed to Portugal for that purpose. In that case, the relative value of these commodities would be regulated by the same principle, as if one were the produce of Yorkshire, and the other of London: and in every other case, if capital freely flowed towards those countries where it could be most profitably employed, there could be no difference in the rate of profit, and no other difference in the real or labour price of commodities, than the additional quantity of labour required to convey them to the various markets where they were to be sold.

  Experience, however, shews, that the fancied or real insecurity of capital, when not under the immediate control of its owner, together with the natural disinclination which every man has to quit the country of his birth and connexions, and intrust himself with all his habits fixed, to a strange government and new laws, check the emigration of capital. These feelings, which I should be sorry to see weakened, induce most men of property to be satisfied with a low rate of profits in their own country, rather than seek a more advantageous employment for their wealth in foreign nations.

  Gold and silver having been chosen for the general medium of circulation, they are, by the competition of commerce, distributed in such proportions amongst the different countries of the world, as to accommodate themselves to the natural traffic which would take place if no such metals existed, and the trade between countries were purely a trade of barter.

  Thus, cloth cannot be imported into Portugal, unless it sell there for more gold than it cost in the country from which it was imported; and wine cannot be imported into England, unless it will sell for more there than it cost in Portugal. If the trade were purely a trade of barter, it could only continue whilst England could make cloth so cheap as to obtain a greater quantity of wine with a given quantity of labour, by manufacturing cloth than by growing vines; and also whilst the industry of Portugal were attended by the reverse effects. Now suppose England to discover a process for making wine, so that it should become her interest rather to grow it than import it; she would naturally divert a portion of her capital from the foreign trade to the home trade; she would cease to manufacture cloth for exportation, and would grow wine for herself. The money price of these commodities would be regulated accordingly; wine would fall here while cloth continued at its former price, and in Portugal no alteration would take place in the price of either commodity. Cloth would continue for some time to be exported from this country, because its price would continue to be higher in Portugal than here; but money instead of wine would be given in exchange for it, till the accumulation of money here, and its diminution abroad, should so operate on the relative value of cloth in the two countries, that it would cease to be profitable to export it. If the improvement in making wine were of a very important description, it might become profitable for the two countries to exchange employments; for England to make all the wine, and Portugal all the cloth consumed by them; but this could be effected only by a new distribution of the precious metals, which should raise the price of cloth in England, and lower it in Portugal. The relative price of wine would fall in England in consequence of the real advantage from the improvement of its manufacture; that is to say, its natural price would fall; the relative price of cloth would rise there from the accumulation of money.

  Thus, suppose before the improvement in making wine in England, the price of wine here were 50l. per pipe, and the price of a certain quantity of cloth were 45l., whilst in Portugal the price of the same quantity of wine was 45l., and that of the same quantity of cloth 50l.; wine would be exported from Portugal with a profit of 5l. and cloth from England with a profit of the same amount.

  Suppose that, after the improvement, wine falls to 45l. in England, the cloth continuing at the same price. Every transaction in commerce is an independent transaction. Whilst a merchant can buy cloth in England for 45l. and sell it with the usual profit in Portugal, he will continue to export it from England. His business is simply to purchase English cloth, and to pay for it by a bill of exchange, which he purchases with Portuguese money. It is to him of no importance what becomes of this money: he has discharged his debt by the remittance of the bill. His transaction is undoubtedly regulated by the terms on which he can obtain this bill, but they are known to him at the time; and the causes which may influence the market price of bills, or the rate of exchange, is no consideration of his.

  If the markets be favorable for the exportation of wine from Portugal to England, the exporter of the wine will be a seller of a bill, which will be purchased either by the importer of the cloth, or by the person who sold him his bill; and thus without the necessity of money passing from either country, the exporters in each country will be paid for their goods. Without having any direct transaction with each other, the money paid in Portugal by the importer of cloth will be paid to the Portuguese exporter of wine; and in England by the negotiation of the same bill, the exporter of the cloth will be authorized to receive its value from the importer of wine.

  But if the prices of wine were such that no wine could be exported to England, the importer of cloth would equally purchase a bill; but the price of that bill would be higher, from the knowledge which the seller of it would possess, that there was no counter bill in the market by which he could ultimately settle the transactions between the two countries; he might know that the gold or silver money which he received in exchange for his bill, must be actually exported to his correspondent in England, to enable him to pay the demand which he had authorized to be made upon him, and he might therefore charge in the price of his bill all the expenses to be incurred, together with his fair and usual profit.

  If then this premium for a bill on England should be equal to the profit on importing cloth, the importation would of course cease; but if the premium on the bill were only 2 per cent., if to be enabled to pay a debt in England of 100l., 102l. should be paid in Portugal, whilst cloth which cost 45l. would sell for 50l., cloth would be imported, bills would be bought, and money would be exported, till the diminution of money in Portugal, and its accumulation in England, had produced such a state of prices as would make it no longer profitable to continue these transactions.

  But the diminution of money in one country, and its increase in another, do not operate on the price of one commodity only, but on the prices of all, and therefore the price of wine and cloth will be both raised in England, and both lowered in Portugal. The price of cloth, from being 45l. in one country and 50l. in the other, would probably fall to 49l. or 48l. in Portugal, and rise to 46l. or 47l. in England, and not afford a sufficient profit after paying a premium for a bill to induce any merchant to import that commodity.

  It is thus that the money of each country is apportioned to it in such quantities only as may be necessary to regulate a profitable trade of barter. England exported cloth in exchange for wine, because, by so doing, her industry was rendered more productive to her; she had more cloth and wine than if she had manufactured both for herself; and Portugal imported cloth and exported wine, because the industry of Portugal could be more beneficially employed for both countries in producing wine. Let there be more difficulty in England in producing cloth, or in Portugal in producing wine, or let there be more facility in England in producing wine, or in Portugal in producing cloth, and the trade must immediately cease.

  No change whatever takes place in the circumstances of Portugal; but England finds that she can employ her labour more productively in the manufacture of wine, and instantly the trade of barter between the two countries changes. Not only is the exportation of wine from Portugal stopped, but a new distribution of the precious metals takes place, and her importation of cloth is also prevented.

  Both countries would probably find it their interest to make their own wine and their own cloth; but this singular result would take place: in England, though wine would be cheaper, cloth would be elevated in price, more would be paid for it by the consumer; while in Portugal the consumers, both of cloth and of wine, would be able to purchase those commodities cheaper. In the country where the improvement was made, prices would be enhanced; in that where no change had taken place, but where they had been deprived of a profitable branch of foreign trade, prices would fall.

  This, however, is only a seeming advantage to Portugal, for the quantity of cloth and wine together produced in that country would be diminished, while the quantity produced in England would be increased. Money would in some degree have changed its value in the two countries, it would be lowered in England and raised in Portugal. Estimated in money, the whole revenue of Portugal would be diminished; estimated in the same medium, the whole revenue of England would be increased.

  Thus then it appears, that the improvement of a manufacture in any country tends to alter the distribution of the precious metals amongst the nations of the world: it tends to increase the quantity of commodities, at the same time that it raises general prices in the country where the improvement takes place.

  To simplify the question, I have been supposing the trade between two countries to be confined to two commodities—to wine and cloth; but it is well known that many and various articles enter into the list of exports and imports. By the abstraction of money from one country, and the accumulation of it in another, all commodities are affected in price, and consequently encouragement is given to the exportation of many more commodities besides money, which will therefore prevent so great an effect from taking place on the value of money in the two countries as might otherwise be expected.

  Beside the improvements in arts and machinery, there are various other causes which are constantly operating on the natural course of trade, and which interfere with the equilibrium, and the relative value of money. Bounties on exportation or importation, new taxes on commodities, sometimes by their direct, and at other times by their indirect operation, disturb the natural trade of barter, and produce a consequent necessity of importing or exporting money, in order that prices may be accommodated to the natural course of commerce; and this effect is produced not only in the country where the disturbing cause takes place, but, in a greater or less degree, in every country of the commercial world.

  This will in some measure account for the different value of money in different countries; it will explain to us why the prices of home commodities, and those of great bulk, though of comparatively small value,1 are, independently of other causes, higher in those countries where manufactures flourish. Of two countries having precisely the same population, and the same quantity of land of equal fertility in cultivation, with the same knowledge too of agriculture, the prices of raw produce will be highest in that where the greater skill, and the better machinery is used in the manufacture of exportable commodities. The rate of profits will probably differ but little; for wages, or the real reward of the labourer, may be the same in both; but those wages, as well as raw produce, will be rated higher in money in that country, into which, from the advantages attending their skill and machinery, an abundance of money is imported in exchange for their goods.

  Of these two countries, if one had the advantage in the manufacture of goods of one quality, and the other in the manufacture of goods of another quality, there would be no decided influx of the precious metals into either; but if the advantage very heavily preponderated in favour of either, that effect would be inevitable.

  In the former part of this work, we have assumed, for the purpose of argument, that money always continued of the same value; we are now endeavouring to shew that besides the ordinary variations in the value of money, and those which are common to the whole commercial world, there are also partial variations to which money is subject in particular countries; and in fact,1 that the value of money is never the same in any two countries, depending as it does on relative taxation, on manufacturing skill, on the advantages of climate, natural productions, and many other causes.

  Although, however, money is subject to such perpetual variations, and consequently the prices of the commodities which are common to most countries, are also subject to considerable difference, yet no effect will be produced on the rate of profits, either from the influx or efflux of money. Capital will not be increased, because the circulating medium is augmented. If the rent paid by the farmer to his landlord, and the wages to his labourers, be 20 per cent. higher in one country than another, and if at the same time the nominal value of the farmer’s capital be 20 per cent. more, he will receive precisely the same rate of profits, although he should sell his raw produce 20 per cent. higher.

  Profits, it cannot be too often repeated, depend on wages; not on nominal, but real wages; not on the number of pounds that may be annually paid to the labourer, but on the number of days’ work, necessary to obtain those pounds. Wages may therefore be precisely the same in two countries; they may bear too the same proportion to rent, and to the whole produce obtained from the land, although in one of those countries the labourer should receive ten shillings per week, and in the other twelve.

  In the early states of society, when manufactures have made little progress, and the produce of all countries is nearly similar, consisting of the bulky and most useful commodities, the value of money in different countries will be chiefly regulated by their distance from the mines which supply the precious metals; but as the arts and improvements of society advance, and different nations excel in particular manufactures, although distance will still enter into the calculation, the value of the precious metals will be chiefly regulated by the superiority of those manufactures.

  Suppose all nations to produce corn, cattle, and coarse clothing only, and that it was by the exportation of such commodities that gold could be obtained from the countries which produced them, or from those who held them in subjection; gold would naturally be of greater exchangeable value in Poland than in England, on account of the greater expense of sending such a bulky commodity as corn the more distant voyage, and also the greater expense attending the conveying of gold to Poland.

  This difference in the value of gold, or which is the same thing, this difference in the price of corn in the two countries, would exist, although the facilities of producing corn in England should far exceed those of Poland, from the greater fertility of the land, and the superiority in the skill and implements of the labourer.

  If however Poland should be the first to improve her manufactures, if she should succeed in making a commodity which was generally desirable, including great value in little bulk, or if she should be exclusively blessed with some natural production, generally desirable, and not possessed by other countries, she would obtain an additional quantity of gold in exchange for this commodity, which would operate on the price of her corn, cattle, and coarse clothing. The disadvantage of distance would probably be more than compensated by the advantage of having an exportable commodity of great value, and money would be permanently of lower value in Poland than in England. If, on the contrary, the advantage of skill and machinery were possessed by England, another reason would be added to that which before existed, why gold should be less valuable in England than in Poland, and why corn, cattle, and clothing, should be at a higher price in the former country.

  These I believe to be the only two causes which regulate the comparative value of money in the different countries of the world; for although taxation occasions a disturbance of the equilibrium of money, it does so by depriving the country in which it is imposed of some of the advantages attending skill, industry, and climate.

  It has been my endeavour carefully to distinguish between a low value of money, and a high value of corn, or any other commodity with which money may be compared. These have been generally considered as meaning the same thing; but it is evident, that when corn rises from five to ten shillings a bushel, it may be owing either to a fall in the value of money, or to a rise in the value of corn. Thus we have seen, that from the necessity of having recourse successively to land of a worse and worse quality, in order to feed an increasing population, corn must rise in relative value to other things. If therefore money continue permanently of the same value, corn will exchange for more of such money, that is to say, it will rise in price. The same rise in the price of corn will be produced by such improvement of machinery in manufactures, as shall enable us to manufacture commodities with peculiar advantages: for the influx of money will be the consequence; it will fall in value, and therefore exchange for less corn. But the effects resulting from a high price of corn when produced by the rise in the value of corn, and when caused by a fall in the value of money, are totally different. In both cases the money price of wages will rise, but if it be in consequence of the fall in the value of money, not only wages and corn, but all other commodities will rise. If the manufacturer has more to pay for wages, he will receive more for his manufactured goods, and the rate of profits will remain unaffected. But when the rise in the price of corn is the effect of the difficulty of production, profits will fall; for the manufacturer will be obliged to pay more wages, and will not be enabled to remunerate himself by raising the price of his manufactured commodity.

  Any improvement in the facility of working the mines, by which the precious metals may be produced with a less quantity of labour, will sink the value of money generally. It will then exchange for fewer commodities in all countries; but when any particular country excels in manufactures, so as to occasion an influx of money towards it, the value of money will be lower, and the prices of corn and labour will be relatively higher in that country, than in any other.

  This higher value of money will not be indicated by the exchange; bills may continue to be negociated at par, although the prices of corn and labour should be 10, 20, or 30 per cent. higher in one country than another. Under the circumstances supposed, such a difference of prices is the natural order of things, and the exchange can only be at par, when a sufficient quantity of money is introduced into the country excelling in manufactures, so as to raise the price of its corn and labour. If foreign countries should prohibit the exportation of money, and could successfully enforce obedience to such a law, they might indeed prevent the rise in the prices of the corn and labour of the manufacturing country; for such rise can only take place after the influx of the precious metals, supposing paper money not to be used; but they could not prevent the exchange from being very unfavourable to them. If England were the manufacturing country, and it were possible to prevent the importation of money, the exchange with France, Holland, and Spain, might be 5, 10, or 20 per cent. against those countries.

  Whenever the current of money is forcibly stopped, and when money is prevented from settling at its just level, there are no limits to the possible variations of the exchange. The effects are similar to those which follow, when a paper money, not exchangeable for specie at the will of the holder, is forced into circulation. Such a currency is necessarily confined to the country where it is issued: it cannot, when too abundant, diffuse itself generally amongst other countries. The level of circulation is destroyed, and the exchange will inevitably be unfavourable to the country where it is excessive in quantity: just so would be the effects of a metallic circulation, if by forcible means, by laws which could not be evaded, money should be detained in a country, when the stream of trade gave it an impetus towards other countries.

  When each country has precisely the quantity of money which it ought to have, money will not indeed be of the same value in each, for with respect to many commodities it may differ 5, 10, or even 20 per cent., but the exchange will be at par. One hundred pounds in England, or the silver which is in 100l., will purchase a bill of 100l., or an equal quantity of silver in France, Spain, or Holland.

  In speaking of the exchange and the comparative value of money in different countries, we must not in the least refer to the value of money estimated in commodities, in either country. The exchange is never ascertained by estimating the comparative value of money in corn, cloth, or any commodity whatever, but by estimating the value of the currency of one country, in the currency of another.

  It may also be ascertained by comparing it with some standard common to both countries. If a bill on England for 100l. will purchase the same quantity of goods in France or Spain, that a bill on Hamburgh for the same sum will do, the exchange between Hamburgh and England is at par; but if a bill on England for 130l., will purchase no more than a bill on Hamburgh for 100l., the exchange is 30 per cent. against England.

  In England 100l. may purchase a bill, or the right of receiving 101l. in Holland, 102l. in France, and 105l. in Spain. The exchange with England is, in that case, said to be 1 per cent. against Holland, 2 per cent. against France, and 5 per cent. against Spain. It indicates that the level of currency is higher than it should be in those countries, and the comparative value of their currencies, and that of England, would be immediately restored to par, by abstracting from theirs, or by adding to that of England.

  Those who maintained that our currency was depreciated during the last ten years, when the exchange varied from 20 to 30 per cent. against this country, have never contended, as they have been accused of doing, that money could not be more valuable in one country than another, as compared with various commodities; but they did contend, that 130l. could not be detained in England, unless it was depreciated,1 when it was of no more value, estimated in the money of Hamburgh, or of Holland, than the bullion in2 100l.

  By sending 130l. good English pounds sterling to Hamburgh, even at an expense of 5l., I should be possessed there of 125l.; what then could make me consent to give 130l. for a bill which would give me 100l. in Hamburgh, but that my pounds were not good pounds sterling?—they were deteriorated, were degraded in intrinsic value below the pounds sterling of Hamburgh, and if actually sent there, at an expense of 5l., would sell only for 100l. With metallic pounds sterling, it is not denied that my 130l. would procure me 125l. in Hamburgh, but with paper pounds sterling I can only obtain 100l.; and yet it was1 maintained that 130l. in paper, was of equal value with 130l. in silver or gold.

  Some indeed more reasonably maintained, that 130l. in paper was not of equal value with 130l. in metallic money; but they said that it was the metallic money which had changed its value, and not the paper money. They wished to confine the meaning of the word depreciation to an actual fall of value, and not to a comparative difference between the value of money, and the standard by which by law it is regulated. One hundred pounds of English money was formerly of equal value with, and could purchase 100l. of Hamburgh money: in any other country a bill of 100l. on England, or on Hamburgh, could purchase precisely the same quantity of commodities. To obtain the same things, I was lately obliged to give 130l. English money, when Hamburgh could obtain them for 100l. Hamburgh money. If English money was of the same value then as before, Hamburgh money must have risen in value. But where is the proof of this? How is it to be ascertained whether English money has fallen, or Hamburgh money has risen? there is no standard by which this can be determined. It is a plea which admits of no proof, and can neither be positively affirmed, nor positively contradicted. The nations of the world must have been early convinced, that there was no standard of value in nature, to which they2 might unerringly refer, and therefore chose a medium, which on the whole appeared to them less variable than any other commodity.

  To this standard we must conform till the law is changed, and till some other commodity is discovered, by the use of which we shall obtain a more perfect standard, than that which we have established. While gold is exclusively the standard in this country, money will be depreciated, when a pound sterling is not of equal value with 5 dwts. and 3 grs. of standard gold, and that, whether gold rises or falls in general value.

  [* ]See Adam Smith, book i. chap. 9.1

  [1 ]Ed. 1 ‘If the importation of wine, given’.

  [1 ]Ed. 1 ‘profits’ in place of ‘profit’.

  [* ]It will appear then, that a country possessing very considerable advantages in machinery and skill, and which may therefore be enabled to manufacture commodities with much less labour than her neighbours, may, in return for such commodities, import a portion of the corn required for its consumption, even if its land were more fertile, and corn could be grown with less labour than in the country from which it was imported. Two men can both make shoes and hats, and one is superior to the other in both employments; but in making hats, he can only exceed his competitor by one-fifth or 20 per cent., and in making shoes he can excel him by one-third or 33 per cent.;—will it not be for the interest of both, that the superior man should employ himself exclusively in making shoes, and the inferior man in making hats?1

  [1 ]Ed. 1 does not contain ‘though of comparatively small value,’.

  [1 ]‘in fact’ is the reading of eds. 1–2; ed. 3 misprints ‘to fact’.

  [1 ]Eds. 1–2 do not contain ‘unless it was depreciated,’.

  [2 ]Eds. 1–2 do not contain ‘the bullion in’.

  [1 ]Eds. 1–2 ‘is’, here and six words below.

  [2 ]Ed. 1 ‘we’.

  [* ]See Adam Smith, book i. chap. 9.1

  [* ]It will appear then, that a country possessing very considerable advantages in machinery and skill, and which may therefore be enabled to manufacture commodities with much less labour than her neighbours, may, in return for such commodities, import a portion of the corn required for its consumption, even if its land were more fertile, and corn could be grown with less labour than in the country from which it was imported. Two men can both make shoes and hats, and one is superior to the other in both employments; but in making hats, he can only exceed his competitor by one-fifth or 20 per cent., and in making shoes he can excel him by one-third or 33 per cent.;—will it not be for the interest of both, that the superior man should employ himself exclusively in making shoes, and the inferior man in making hats?1

  [1]Cannan’s ed., vol. 1, p. 95.

  [1]Cp. A. Smith’s taylor and shoemaker, Bk. iv, ch. ii; vol. 1, p. 422.

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  6: On Currency and Banks in Principles of Political Economy and Taxation [1817/2004]

  David Ricardo, The Works and Correspondence of David Ricardo, ed. Piero Sraffa with the Collaboration of M.H. Dobb (Indianapolis: Liberty Fund, 2005). Vol. 1 Principles of Political Economy and Taxation. Chapter: chapter xxvii: On Currency and Banks

  Accessed from oll.libertyfund.org/title/113/38327 on 2010-02-03

  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.

  ---

  chapter xxvii

  On Currency and Banks

  So much1 has already been written on currency, that of those who give their attention to such subjects, none but the prejudiced are ignorant of its true principles. I shall, therefore, take only a brief survey of some of the general laws which regulate its quantity and value.

  Gold and silver, like all other commodities, are valuable only in proportion to the quantity of labour necessary to produce them, and bring them to market. Gold is about fifteen times dearer than silver, not because there is a greater demand for it, nor because the supply of silver is fifteen times greater than that of gold, but solely because fifteen times the quantity of labour is necessary to produce a given quantity of it.

  The quantity of money that can be employed in a country must depend on its value: if gold alone were employed for the circulation of commodities, a quantity would be required, one fifteenth only of what would be necessary, if silver were made use of for the same purpose.

  A circulation can never be so abundant as to overflow; for by diminishing its value, in the same proportion you will increase its quantity, and by increasing its value, diminish its quantity.2

  While the State1 coins money, and charges no seignorage, money will be of the same value as any other piece of the same metal of equal weight and fineness; but if the State charges a seignorage for coinage, the coined piece of money will generally exceed the value of the uncoined piece of metal by the whole seignorage charged, because it will require a greater quantity of labour, or, which is the same thing, the value of the produce of a greater quantity of labour, to procure it.

  While the State alone coins, there can be no limit to this charge of seignorage; for by limiting the quantity of coin, it can be raised to any conceivable value.

  It is on this principle that paper money circulates: the whole charge for paper money may be considered as seignorage. Though it has no intrinsic value, yet, by limiting its quantity, its value in exchange is as great as an equal denomination of coin, or of bullion in that coin. On the same principle, too, namely, by a limitation of its quantity, a debased coin would circulate at the value it should bear, if it were of the legal weight and fineness, and2 not at the value of the quantity of metal which it actually contained. In the history of the British coinage, we find, accordingly, that the currency was never depreciated in the same proportion that it was debased; the reason of which was, that it never was increased in quantity,3 in proportion to its diminished intrinsic4 value.*

  There is no point more important in issuing paper money, than to be fully impressed with the effects which follow from the principle of limitation of quantity. It will scarcely be believed fifty years hence, that Bank directors and ministers gravely contended in our times, both in parliament, and before committees of parliament, that the issues of notes by the Bank of England, unchecked by any power in the holders of such notes, to demand in exchange either specie, or bullion, had not, nor could have any effect on the prices of commodities, bullion, or foreign exchanges.1

  After the establishment of Banks, the State has not the sole power of coining or issuing money. The currency may as effectually be increased by paper as by coin; so that if a State were to debase its money, and limit its quantity, it could not support its value, because the Banks would have an equal power of adding to the whole quantity of circulation.

  On these principles, it will be seen that it is not necessary that paper money should be payable in specie to secure its value; it is only necessary that its quantity should be regulated according to the value of the metal which is declared to be the standard. If the standard were gold of a given weight and fineness, paper might be increased with every fall in the value of gold, or, which is the same thing in its effects, with every rise in the price of goods.

  “By issuing too great a quantity of paper,” says Dr. Smith, “of which the excess was continually returning, in order to be exchanged for gold and silver, the Bank of England was, for many years together, obliged to coin gold to the extent of between eight hundred thousand pounds and a million a year, or at an average, about eight hundred and fifty thousand pounds. For this great coinage, the Bank, in consequence of the worn and degraded state into which the gold coin had fallen a few years ago, was frequently obliged to purchase bullion, at the high price of four pounds an ounce, which it soon after issued in coin at 3l. 17s. 10½d. an ounce, losing in this manner between two and a half and three per cent, upon the coinage of so very large a sum. Though the Bank, therefore, paid no seignorage, though the Government was properly at the expense of the coinage, this liberality of Government did not prevent altogether the expense of the Bank.”1

  On the principle above stated, it appears to me most clear, that by not re-issuing the paper thus brought in, the value of the whole currency, of the degraded as well as the new gold coin, would have been raised, when all demands on the Bank would have ceased.

  Mr. Buchanan, however, is not of this opinion, for he says, “that the great expense to which the Bank was at this time exposed, was occasioned, not, as Dr. Smith seems to imagine, by any imprudent issue of paper, but by the debased state of the currency, and the consequent high price of bullion. The Bank, it will be observed, having no other way of procuring 2 guineas but by sending bullion to the Mint to be coined, was always forced to issue new coined guineas, in exchange for its returned notes; and when the currency was generally deficient in weight, and the price of bullion high in proportion, it became profitable to draw these heavy guineas from the Bank in exchange for its paper; to convert them into bullion, and to sell them with a profit for Bank paper, to be again returned to the Bank for a new supply of guineas, which were again melted and sold. To this drain of specie, the Bank must always be exposed while the currency is deficient in weight, as both an easy and a certain profit then arises from the constant interchange of paper for specie. It may be remarked, however, that to whatever inconvenience and expense the Bank was then exposed by the drain of its specie, it never was imagined necessary to rescind the obligation to pay money for its notes.”1

  Mr. Buchanan evidently thinks that the whole currency must, necessarily, be brought down to the level of the value of the debased pieces; but, surely, by a diminution of the quantity of the currency, the whole that remains can be elevated to the value of the best pieces.

  Dr. Smith appears to have forgotten his own principle, in his argument on colony currency. Instead of ascribing the depreciation of that paper to its too great abundance, he asks whether, allowing the colony security to be perfectly good, a hundred pounds, payable fifteen years hence, would be equally valuable with a hundred pounds to be paid immediately?2 I answer yes, if it be not too abundant.

  Experience, however, shews, that neither a State nor a Bank ever have had the unrestricted power of issuing paper money, without abusing that power: in all States, therefore, the issue of paper money ought to be under some check and controul3 ; and none seems so proper for that purpose, as that of subjecting the issuers of paper money to the obligation of paying their notes, either in gold coin or bullion.

  [4 “To secure the public* against any other variations in the value of currency than those to which the standard itself is subject, and, at the same time, to carry on the circulation with a medium the least expensive, is to attain the most perfect state to which a currency can be brought, and we should possess all these advantages by subjecting the Bank to the delivery of uncoined gold or silver at the Mint standard and price, in exchange for their notes, instead of the delivery of guineas; by which means paper would never fall below the value of bullion, without being followed by a reduction of its quantity. To prevent the rise of paper above the value of bullion, the Bank should be also obliged to give their paper in exchange for standard gold at the price of 3l. 17s. per ounce. Not to give too much trouble to the Bank, the quantity of gold to be demanded in exchange for paper at the Mint price of 3l. 17s. 10½d., or the quantity to be sold to the Bank at 3l. 17s., should never be less than twenty ounces. In other words the Bank should be obliged to purchase any quantity of gold that was offered them, not less than twenty ounces, at 3l. 17s.* per ounce, and to sell any quantity that might be demanded at 3l. 17s. 10½ d. While they have the power of regulating the quantity of their paper, there is no possible inconvenience that could result to them from such a regulation.

  “The most perfect liberty should be given, at the same time to export or import every description of bullion. These transactions in bullion would be very few in number, if the Bank regulated their loans and issues of paper by the criterion which I have so often mentioned, namely, the price of standard bullion, without attending to the absolute quantity of paper in circulation.

  “The object which I have in view would be in a great measure attained, if the Bank were obliged to deliver uncoined bullion, in exchange for their notes, at the Mint price and standard; though they were not under the necessity of purchasing any quantity of bullion offered them at the prices to be fixed, particularly if the Mint were to continue open to the public for the coinage of money: for that regulation is merely suggested, to prevent the value of money from varying from the value of bullion more than the trifling difference between the prices at which the Bank should buy and sell, and which would be an approximation to that uniformity in its value, which is acknowledged to be so desirable.

  “If the Bank capriciously limited the quantity of their paper, they would raise its value; and gold might appear to fall below the limits at which I propose the Bank should purchase. Gold, in that case, might be carried to the Mint, and the money returned from thence, being added to the circulation, would have the effect of lowering its value, and making it again conform to the standard; but it would neither be done so safely, so economically, nor so expeditiously, as by the means which I have proposed; against which the Bank can have no objection to offer, as it is for their interest to furnish the circulation with paper, rather than oblige others to furnish it with coin.

  “Under such a system, and with a currency so regulated, the Bank would never be liable to any embarrassments whatever, excepting on those extraordinary occasions, when a general panic seizes the country, and when every one is desirous of possessing the precious metals as the most convenient mode of realizing or concealing his property. Against such panics, Banks have no security, on any system; from their very nature they are subject to them, as at no time can there be in a Bank, or in a country, so much specie or bullion as the monied individuals of such country have a right to demand. Should every man withdraw his balance from his banker on the same day, many times the quantity of Bank notes now in circulation would be insufficient to answer such a demand. A panic of this kind was the cause of the crisis in 1797; and not, as has been supposed, the large advances which the Bank had then made to Government. Neither the Bank nor Government were at that time to blame; it was the contagion of the unfounded fears of the timid part of the community, which occasioned the run on the Bank, and it would equally have taken place if they had not made any advances to Government, and had possessed twice their present capital. If the Bank had continued paying in cash, probably the panic would have subsided before their coin had been exhausted.

  “With the known opinion of the Bank directors, as to the rule for issuing paper money, they may be said to have exercised their powers without any great indiscretion. It is evident that they have followed their own principle with extreme caution. In the present state of the law, they have the power, without any control whatever, of increasing or reducing the circulation in any degree they may think proper: a power which should neither be intrusted to the State itself, nor to any body in it; as there can be no security for the uniformity in the value of the currency, when its augmentation or diminution depends solely on the will of the issuers. That the Bank have the power of reducing the circulation to the very narrowest limits will not be denied, even by those who agree in opinion with the directors, that they have not the power of adding indefinitely to its quantity. Though I am fully assured, that it is both against the interest and the wish of the Bank to exercise this power to the detriment of the public, yet, when I contemplate the evil consequences which might ensue from a sudden and great reduction of the circulation, as well as from a great addition to it, I cannot but deprecate the facility with which the State has armed the Bank with so formidable a prerogative.

  “The inconvenience to which country banks were subjected before the restriction on cash payments, must, at times, have been very great. At all periods of alarm, or of expected alarm, they must have been under the necessity of providing themselves with guineas, that they might be prepared for every exigency which might occur. Guineas, on these occasions, were obtained at the Bank in exchange for the larger notes, and were conveyed by some confidential agent, at expense and risk, to the country bank. After performing the offices to which they were destined, they found their way again to London, and in all probability were again lodged in the Bank, provided they had not suffered such a loss of weight, as to reduce them below the legal standard.

  “If the plan now proposed, of paying Bank notes in bullion, be adopted, it would be necessary either to extend the same privilege to country banks, or to make Bank notes, a legal tender, in which latter case, there would be no alteration in the law respecting country banks, as they would be required, precisely as they now are, to pay their notes, when demanded, in Bank of England notes.

  “The saving which would take place, from not submitting the guineas to the loss of weight, from the friction which they must undergo in their repeated journeys, as well as of the expenses of conveyance, would be considerable; but by far the greatest advantage would result from the permanent supply of the country, as well as of the London circulation, as far as the smaller payments are concerned, being provided in the very cheap medium, paper, instead of the very valuable medium, gold; thereby enabling the country to derive all the profit which may be obtained by the productive employment of a capital to that amount. We should surely not be justified in rejecting so decided a benefit, unless some specific inconvenience could be pointed out as likely to follow from adopting the cheaper medium.”]1

  A currency is in its most perfect state when it consists wholly of paper money, but of paper money of an equal value with the gold which it professes to represent. The use of paper instead of gold, substitutes the cheapest in place of the most expensive medium, and enables the country, without loss to any individual, to exchange all the gold which it before used for this purpose, for raw materials, utensils, and food; by the use of which, both its wealth and its enjoyments are increased.

  In a national point of view, it is of no importance whether the issuers of this well regulated paper money be the Government or a Bank, it will, on the whole, be equally productive of riches, whether it be issued by one or by the other; but it is not so with respect to the interest of individuals. In a country where the market rate of interest is 7 per cent., and where the State requires for a particular expense 70,000l. per annum, it is a question of importance to the individuals of that country, whether they must be taxed to pay this 70,000l. per annum, or whether they could raise it without taxes. Suppose that a million of money should be required to fit out an expedition. If the State issued a million of paper, and displaced a million of coin, the expedition would be fitted out without any charge to the people; but if a Bank issued a million of paper, and lent it to Government at 7 per cent., thereby displacing a million of coin, the country would be charged with a continual tax of 70,000l. per annum: the people would pay the tax, the Bank would receive it, and the society would in either case be as wealthy as before; the expedition would have been really fitted out by the improvement of our system, by rendering capital of the value of a million productive in the form of commodities, instead of letting it remain unproductive in the form of coin; but the advantage would always be in favour of the issuers of paper; and as the State represents the people, the people would have saved the tax, if they, and not the Bank, had issued this million.

  I have already observed, that if there were perfect security that the power of issuing paper money would not be abused, it would be of no importance with respect to the riches of the country collectively, by whom it was issued; and I have now shewn that the public would have a direct interest that the issuers should be the State, and not a company of merchants or bankers. The danger, however, is, that this power would be more likely to be abused, if in the hands of Government, than if in the hands of a banking company. A company would, it is said, be more under the control of law, and although it might be their interest to extend their issues beyond the bounds of discretion, they would be limited and checked by the power which individuals would have of calling for bullion or specie. It is argued that the same check would not be long respected, if Government had the privilege of issuing money; that they would be too apt to consider present convenience, rather than future security, and might, therefore, on the alleged grounds of expediency, be too much inclined to remove the checks, by which the amount of their issues was controlled.

  Under an arbitrary Government, this objection would have great force; but, in a free country, with an enlightened legislature, the power of issuing paper money, under the requisite checks of convertibility at the will of the holder, might be safely lodged in the hands of commissioners appointed for that special purpose, and they might be made totally independent of the control of ministers.

  The sinking fund is managed by commissioners, responsible only to parliament, and the investment of the money entrusted to their charge, proceeds with the utmost regularity; what reason can there be to doubt that the issues of paper money might be regulated with equal fidelity, if placed under similar management?

  It may be said, that although the advantage accruing to the State, and, therefore, to the public, from issuing paper money, is sufficiently manifest, as it would exchange a portion of the national debt, on which interest is paid by the public, into a debt bearing no interest; yet it would be disadvantageous to commerce, as it would preclude the merchants from borrowing money, and getting their bills discounted, the method in which Bank paper is partly issued.

  This, however, is to suppose that money could not be borrowed, if the Bank did not lend it, and that the market rate of interest and profit depends on the amount1 of the issues of money, and on the channel through which it is issued. But as a country would have no deficiency of cloth, of wine, or any other commodity, if they had the means of paying for it, in the same manner neither would there be any deficiency of money to be lent, if the borrowers offered good security, and were willing to pay the market rate of interest for it.

  In another part of this work,2 I have endeavoured to shew, that the real value of a commodity is regulated, not by the accidental advantages which may be enjoyed by some of its producers, but by the real difficulties encountered by that producer who is least favoured. It is so with respect to the interest for money; it is not regulated by the rate at which the Bank will lend, whether it be 5, 4, or 3 per cent., but by the rate of profits which can be made by the employment of capital, and which is totally independent of the quantity, or of the value of money. Whether a Bank lent one million, ten millions, or a hundred millions, they would not permanently alter the market rate of interest; they would alter only the value of the money which they thus issued. In one case, 10 or 20 times more money might be required to carry on the same business, than what might be required in the other. The applications to the Bank for money, then, depend on the comparison between the rate of profits that may be made by the employment of it, and the rate at which they are willing to lend it. If they charge less than the market rate of interest, there is no amount of money which they might not lend,—if they charge more than that rate, none but spend-thrifts and prodigals would be found to borrow of them. We accordingly find, that when the market rate of interest exceeds the rate of 5 per cent. at which the Bank uniformly lend, the discount office is besieged with applicants for money; and, on the contrary, when the market rate is even temporarily under 5 per cent., the clerks of that office have no employment.

  The reason, then, why for the last twenty years, the Bank is said to have given so much aid to commerce, by assisting the merchants with money, is, because they have, during that whole period, lent money below the market rate of interest; below that rate at which the merchants could have borrowed elsewhere; but, I confess, that to me this seems rather an objection to their establishment, than an argument in favour of it.

  What should we say of an establishment which should regularly supply half the clothiers with wool1 under the market price? Of what benefit would it be to the community? It would not extend our trade, because the wool would equally have been bought if they had charged the market price for it. It would not lower the price of cloth to the consumer, because the price, as I have said before, would be regulated by the cost of its production to those who were the least favoured. Its sole effect, then, would be, to swell the profits of a part of the clothiers beyond the general and common rate of profits. The establishment would be deprived of its fair profits, and another part of the community would be in the same degree benefited. Now this is precisely the effect of our banking establishments; a rate of interest is fixed by the law below that at which it can be borrowed in the market, and at this rate the Bank are required to lend, or not to lend at all. From the nature of their establishment, they have large funds which they can only dispose of in this way; and a part of the traders of the country are unfairly, and, for the country, unprofitably benefited, by being enabled to supply themselves with an instrument of trade, at a less charge than those who must be influenced only by market price.

  The whole business, which the whole community can carry on, depends on the quantity of its1 capital, that is, of its raw material, machinery, food, vessels, &c. employed in production. After a well regulated paper money is established, these can neither be increased nor diminished by the operations of banking. If, then, the State were to issue the paper money of the country, although it should never discount a bill, or lend one shilling to the public, there would be no alteration in the amount of trade; for we should have the same quantity of raw materials, of machinery, food, and ships; and it is probable, too, that the same amount of money might be lent, not always2 at 5 per cent. indeed, a rate fixed by law, when that might be under the market rate,3 but at 6, 7, or 8 per cent., the result of the fair competition in the market between the lenders and the borrowers.

  Adam Smith speaks4 of the advantages derived by merchants from the superiority of the Scotch mode of affording accommodation to trade, over the English mode, by means of cash accounts. These cash accounts are credits given by the Scotch banker to his customers, in addition to the bills which he discounts for them; but, as the banker, in proportion as he advances money, and sends it into circulation in one way, is debarred from issuing so much in the other, it is difficult to perceive in what the advantage consists. If the whole circulation will bear only one million of paper, one million only will be circulated; and it can be of no real importance either to the banker or merchant, whether the whole be issued in discounting bills, or a part be so issued, and the remainder be issued by means of these cash accounts.

  It may perhaps be necessary to say a few words on the subject of the two metals, gold and silver, which are employed in currency, particularly as this question appears to perplex, in many people’s minds, the plain and simple principles of currency. “In England,” says Dr. Smith, “gold was not considered as a legal tender for a long time after it was coined into money. The proportion between the values of gold and silver money was not fixed by any public law or proclamation, but was left to be settled by the market. If a debtor offered payment in gold, the creditor might either reject such payment altogether, or accept of it at such a valuation of the gold, as he and his debtor could agree upon.”1

  In this state of things it is evident that a guinea might sometimes pass for 22s. or more, and sometimes for 18s. or less, depending entirely on the alteration in the relative market value of gold and silver. All the variations, too, in the value of gold, as well as in the value of silver, would be rated in the gold coin, —it would appear as if silver was invariable, and as if 2 gold only was subject to rise and3 fall. Thus, although a guinea passed for 22s. instead of 18s., gold might not have varied in value; the variation might have been wholly confined to the silver, and therefore 22s. might have been of no more value than 18s. were before. And, on the contrary, the whole variation might have been in the gold: a guinea, which was worth 18s., might have risen to the value of 22s.

  If now we suppose this silver currency to be debased by clipping, and also increased in quantity, a guinea might pass for 30s.; for the silver in 30s. of such debased money might be of no more value than the gold in one guinea. By restoring the silver currency to its Mint value, silver money would rise: but it would appear as if gold fell, for a guinea would probably be of no more value than 21 of such good shillings.

  If now gold be also made a legal tender, and every debtor be at liberty to discharge a debt by the payment of 420 shillings, or twenty guineas for every 21l. that he owes, he will pay in one or the other according as he can most cheaply discharge his debt. If with five quarters of wheat he can procure as much gold bullion as the Mint will coin into twenty guineas, and for the same wheat as much silver bullion as the Mint will coin for him into 430 shillings, he will prefer paying in silver, because he would be a gainer of ten shillings by so paying his debt. But if, on the contrary, he could obtain with this wheat as much gold as would be coined into twenty guineas and a half, and as much silver only as would coin into 420 shillings, he would naturally prefer paying his debt in gold. If the quantity of gold which he could procure could be coined only into twenty guineas, and the quantity of silver into 420 shillings, it would be a matter of perfect indifference to him in which money, silver or gold, it was that he paid his debt. It is not then a matter of chance; it is not because gold is better fitted for carrying on the circulation of a rich country, that gold is ever preferred for the purpose of paying debts; but, simply, because it is the interest of the debtor so to pay them.

  During a long period previous to 1797, the year of the restriction on the Bank payments in coin, gold was so cheap, compared with silver, that it suited the Bank of England, and all other debtors, to purchase gold in the market, and not silver, for the purpose of carrying it to the Mint to be coined, as they could in that coined metal more cheaply discharge their debts. The silver currency was, during a great part of this period, very much debased; but it existed in a degree of scarcity, and, therefore, on the principle which I have before explained, it never sunk in its current value. Though so debased, it was still the interest of debtors to pay in the gold coin. If, indeed, the quantity of this debased silver coin had been enormously great, or if the Mint had issued such debased pieces, it might have been the interest of debtors to pay in this debased money; but its quantity was limited, and it sustained its value, and, therefore, gold was in practice the real standard of currency.

  That it was so, is no where denied; but it has been contended, that it was made so by the law, which declared that silver should not be a legal tender for any debt exceeding 25l., unless by weight, according to the Mint standard.

  But this law did not prevent any debtor from paying his1 debt, however large its amount, in silver currency fresh from the Mint; that the debtor did not pay in this metal, was not a matter of chance, nor a matter of compulsion, but wholly the effect of choice; it did not suit him to take silver to the Mint, it did suit him to take gold thither. It is probable, that if the quantity of this debased silver in circulation had been enormously great, and also a legal tender, that a guinea would have been again worth thirty shillings; but it would have been the debased shilling that would have fallen in value, and not the guinea that had risen.

  It appears, then, that whilst each of the two metals was equally a legal tender for debts of any amount, we were subject to a constant change in the principal standard measure of value. It would sometimes be gold, sometimes silver, depending entirely on the variations in the relative value of the two metals; and at such times the metal, which was not the standard, would be melted, and withdrawn from circulation, as its value would be greater in bullion than in coin. This was an inconvenience, which it was highly desirable should be remedied; but so slow is the progress of improvement, that although it had been unanswerably demonstrated by Mr. Locke,1 and had been noticed by all writers on the subject of money since his day, a better system was never adopted till the session of Parliament, 18162 , when it was enacted that gold only should be a legal tender for any sum exceeding forty 3 shillings.

  Dr. Smith does not appear to have been quite aware of the effect of employing two metals as currency, and both a legal tender for debts of any amount; for he says, that “in reality, during the continuance of any one regulated proportion between the respective values of the different metals in coin, the value of the most precious metal regulates the value of the whole coin.”4 Because gold was in his day the medium in which it suited debtors to pay their debts, he thought that it had some inherent quality by which it did then, and always would regulate the value of silver coin.

  On the reformation of the gold coin in 1774, a new guinea fresh from the Mint, would exchange for only twenty-one debased shillings; but in the reign of King William, when the silver coin was in precisely the same condition, a guinea also new and fresh from the Mint would exchange for thirty shillings. On this Mr. Buchanan observes, “here, then, is a most singular fact, of which the common theories of currency offer no account; the guinea exchanging at one time for thirty shillings, its intrinsic worth in a debased silver currency, and afterwards the same guinea exchanged for only twenty-one of those debased shillings. It is clear that some great change must have intervened in the state of the currency between these two different periods, of which Dr. Smith’s hypothesis offers no explanation.”1

  It appears to me, that the difficulty may be very simply solved, by referring this different state of the value of the guinea at the two periods mentioned, to the different quantities of debased silver currency in circulation. In King William’s reign gold was not a legal tender; it passed only at a conventional value. All the large payments were probably made in silver, particularly as paper currency, and the operations of banking, were then little understood. The quantity of this debased silver money exceeded the quantity of silver money, which would have been maintained in circulation, if nothing but undebased money had been in use; and, consequently, it was depreciated as well as debased. But in the succeeding period when gold was a legal tender, when Bank notes also were used in effecting payments, the quantity of debased silver money did not exceed the quantity of silver coin fresh from the Mint, which would have circulated if there had been no debased silver money; hence, though the money was debased, it was not depreciated. Mr. Buchanan’s explanation is somewhat different; he thinks that a subsidiary currency is not liable to depreciation, but that the main currency is. In King William’s reign silver was the main currency, and hence was liable to depreciation. In 1774 it was a subsidiary currency, and, therefore, maintained its value. Depreciation, however, does not depend on a currency being the subsidiary or the main currency, it depends wholly on its being in excess of quantity.*

  To a moderate seignorage on the coinage of money there cannot be much objection, particularly on that currency which is to effect the smaller payments. Money is generally enhanced in value to the full amount of the seignorage, and, therefore, it is a tax which in no way affects those who pay it, while the quantity of money is not in excess. It must, however, be remarked, that in a country where a paper currency is established, although the issuers of such paper should be liable to pay it in specie on the demand of the holder, still, both their notes and the coin might be depreciated to the full amount of the seignorage on that coin, which is alone the legal tender, before the check, which limits the circulation of paper, would operate. If the seignorage of 1 gold coin were 5 per cent. for instance, the currency, by an abundant issue of Bank-notes, might be really depreciated 5 per cent. before it would be the interest of the holders to demand coin for the purpose of melting it into bullion; a depreciation to which we should never be exposed, if either there was no seignorage on the gold coin; or, if a seignorage were allowed, the holders of Bank-notes might demand bullion, and not coin, in exchange for them, at the Mint price of 3l. 17s. 10½d. Unless, then, the Bank should be obliged to pay their notes in bullion or coin, at the will of the holder, the late law which allows a seignorage of 6 per cent., or four-pence per oz., on the silver coin, but which directs that gold shall be coined by the Mint without any charge whatever, is perhaps the most proper, as it will most2 effectually prevent any unnecessary variation of the currency.3

  [1 ]In ed. 1 the chapter opens ‘It is not my intention to detain the reader by any long dissertation on the subject of money. So much’.

  [2 ]In ed. 1 a note is attached here:
  
  ‘“The use of gold and silver then establishes in every place a certain necessity for these commodities; and when the country possesses the quantity necessary to satisfy this want, all that is further imported, not being in demand, is unfruitful in value, and of no use to its owners.”—Say, vol. i. p. 187.
  
  ‘In page 196, M. Say says, that supposing a country to require 1000 carriages, and to be possessed of 1500—all above 1000 would be useless; and thence he infers, that if it possesses more money than is necessary, the overplus will not be employed.’

  [1 ]Eds. 1–2 ‘state’, here and below.

  [2 ]Eds. 1–2 do not contain ‘and’.

  [3 ]Eds. 1–2 ‘never was multiplied’.

  [4 ]Ed. 1 does not contain ‘intrinsic’.

  [* ]Whatever I say of gold coin, is equally applicable to silver coin; but it is not necessary to mention both on every occasion.

  [1 ]Ed. 1 does not contain this paragraph. See McCulloch’s advice to ‘enlarge a little on the principle of limitation’ (below, VII, 353). For the contention of the Bank Directors before the Bullion Committee see below, III, 357, 373.

  [1 ]Bk. ii, ch. ii; vol. i, p. 285.

  [2 ]In ed. 1 a note is attached here:
  
  ‘“In the transactions of Government with individuals, and in those of individuals between themselves, a piece of money is never received, whatever denomination may be given to it, but at its intrinsic value, increased by the value of the utility which the impression it bears has added to it.”—Say, vol. i. p. 327.
  
  ‘“Money is so little a mark of value, that if the pieces of money lose a part of their value by friction, from use, or by the knavery of the clippers of money, all goods rise in price in proportion to the alteration which they have experienced; and if Government orders a recoinage, and restores each piece to its legal weight and fineness, goods will fall to their former price; if they have not been exposed to variations from other causes.”—Say, vol. i. p. 346.’

  [1 ]Buchanan’s ed. of the Wealth of Nations, vol. i, pp. 477–8, note.

  [2 ]Bk. ii, ch. ii; vol. i, p. 309.

  [3 ]Eds. 1–2 ‘control’.

  [4 ]The square brackets in this case are Ricardo’s. The quotation is not contained in ed. 1 and was inserted at McCulloch’s suggestion; see below, VII, 353.

  [* ]This, and the following paragraphs, to the close of the bracket, p. 361, is extracted from a Pamphlet entitled “Proposals for an Economical and Secure Currency,”5 published by the author 6 in the year 1816.

  [* ]The price of 3l. 17s. here mentioned, is, of course, an arbitrary price. There might be good reason, perhaps, for fixing it either a little above, or a little below. In naming 3l. 17s. I wish only to elucidate the principle. The price ought to be so fixed as to make it the interest of the seller of gold rather to sell it to the Bank, than to carry it to the Mint to be coined.
  
  The same remark applies to the specified quantity of twenty ounces. There might be good reason for making it ten or thirty.

  [1 ]The square brackets in this case are Ricardo’s; see above p. 356.

  [1 ]Ed. 1 ‘amounts’.

  [2 ]Above, p. 73.

  [1 ]Eds. 1–2 ‘with their wool’.

  [1 ]Eds. 1–2 do not contain ‘its’.

  [2 ]Eds. 1–2 do not contain ‘always’.

  [3 ]Eds. 1–2 do not contain ‘when that might be under the market rate,’.

  [4 ]Bk. ii, ch. ii; vol. i, pp. 280–3.

  [1 ]Bk. i, ch. v; vol. i, p.41.

  [2 ]Ed. 1 ‘that’ in place of ‘as if’.

  [3 ]Ed. 1 ‘or’ in place of ‘and’.

  [1 ]Ed. 1 ‘any’ in place of ‘his’.

  [1 ]Further Considerations Concerning Raising the Value of Money, 1695, p. 20.

  [2 ]Eds. 1–2 ‘the last session of Parliament’.

  [3 ]Ed. 1 in the text reads ‘twentyone’; in the Errata ‘forty-two’. ‘A guinea’ had been the suggestion of Adam Smith (Wealth of Nations, vol. i, p. 46) and of Lord Liverpool (see below, III, 67, n. 1); ‘two guineas’ was the Government proposal made on 30 May 1816 (Hansard, XXXIV, 958); ‘40s.’ was enacted later in the same year (56 Geo. III, c. 68).

  [4 ]Bk. i, ch. v; vol. i, p.43.

  [1 ]Buchanan’s ed. of the Wealth of Nations, vol. i, p. 65, note.

  [* ]It has lately been contended in parliament by Lord Lauderdale,1 that, with the existing Mint regulation, the Bank could not pay their notes in specie, because the relative value of the two metals is such, that it would be for the interest of all debtors to pay their debts with silver and not with gold coin, while the law gives a power to all the creditors of the Bank to demand gold in exchange for Bank notes. This gold, his Lordship thinks, could be profitably exported, and if so, he contends2 that the Bank, to keep a supply, will3 be obliged to buy gold constantly at a premium, and sell it at par. If every other debtor could pay in silver, Lord Lauderdale would be right; but he cannot do so if his debt exceed 40s. This, then, would limit the amount of silver coin in circulation, (if Government had not reserved to itself the power to stop the coinage of that metal whenever they might think it expedient,)4 because if too much silver were coined, it would sink in relative value to gold, and no man would accept it in payment for a debt exceeding 40 shillings, unless a compensation were made for its lower value. To pay a debt of 100l., one hundred sovereigns, or Bank notes to the amount of 100l. would be necessary, but 105l., in silver coin might be required, if there were too much silver in circulation.5 There are, then, two checks against an excessive quantity of silver coin; first, the direct check which Government may at any time interpose to prevent more from being coined; secondly, no motive of interest would lead any one to take silver to the Mint, if he might do so,6 for if it were coined, it would not pass current at its Mint, but only7 at its market value.8

  [1 ]Ed. 1 ‘on’.

  [2 ]Eds. 1–2 ‘more’.

  [3 ]In ed. 1 a note is attached here:
  
  ‘M. Say recommends that the seignorage should vary according to the quantity of business that the mint might be called upon to perform.
  
  ‘“Government should not coin the bullion of individuals except on payment, not only of the expenses, but also of the profits of coining. This profit might be carried to a considerable height, in consequence of the exclusive privilege of coining; but it must vary according to the circumstances of the mint, and the quantity required for circulation.”—Vol. i. p. 380.
  
  ‘Such a regulation would be extremely pernicious, and would expose us to considerable and unnecessary variation in the bullion value of the currency.’

  [* ]This, and the following paragraphs, to the close of the bracket, p. 361, is extracted from a Pamphlet entitled “Proposals for an Economical and Secure Currency,”5 published by the author 6 in the year 1816.

  [* ]It has lately been contended in parliament by Lord Lauderdale,1 that, with the existing Mint regulation, the Bank could not pay their notes in specie, because the relative value of the two metals is such, that it would be for the interest of all debtors to pay their debts with silver and not with gold coin, while the law gives a power to all the creditors of the Bank to demand gold in exchange for Bank notes. This gold, his Lordship thinks, could be profitably exported, and if so, he contends2 that the Bank, to keep a supply, will3 be obliged to buy gold constantly at a premium, and sell it at par. If every other debtor could pay in silver, Lord Lauderdale would be right; but he cannot do so if his debt exceed 40s. This, then, would limit the amount of silver coin in circulation, (if Government had not reserved to itself the power to stop the coinage of that metal whenever they might think it expedient,)4 because if too much silver were coined, it would sink in relative value to gold, and no man would accept it in payment for a debt exceeding 40 shillings, unless a compensation were made for its lower value. To pay a debt of 100l., one hundred sovereigns, or Bank notes to the amount of 100l. would be necessary, but 105l., in silver coin might be required, if there were too much silver in circulation.5 There are, then, two checks against an excessive quantity of silver coin; first, the direct check which Government may at any time interpose to prevent more from being coined; secondly, no motive of interest would lead any one to take silver to the Mint, if he might do so,6 for if it were coined, it would not pass current at its Mint, but only7 at its market value.8

  [5]Below, IV, 66–70.

  [6]Ed. 2 does not contain ‘by the author’.

  [1]See Lord Lauderdale’s Protest against the rejection of his amendment to the Bank Restriction Continuance Bill, of 27 May 1818, in Journals of the House of Lords, 1817– 1818, p. 698. Cp. below, VIII, 3.

  [2]Ed. 2 does not contain ‘if so, he contends’.

  [3]Ed. 2 ‘would’.

  [4]In ed. 2 this clause is not in brackets.

  [5]Ed. 2 does not contain ‘, if there were too much silver in circulation’.

  [6]Ed. 2 does not contain ‘if he might do so,’.

  [7]Ed. 2 does not contain ‘only’.

  [8]Ed. 1 does not contain this note.

• Back to Top

  7: On Natural and Market Price in Principles of Political Economy and Taxation [1817/2004]

  David Ricardo, The Works and Correspondence of David Ricardo, ed. Piero Sraffa with the Collaboration of M.H. Dobb (Indianapolis: Liberty Fund, 2005). Vol. 1 Principles of Political Economy and Taxation. Chapter: chapter iv: On Natural and Market Price

  Accessed from oll.libertyfund.org/title/113/38281 on 2010-02-03

  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.

  ---

  chapter iv

  On Natural and Market Price

  In making labour the foundation of the value of commodities, and the comparative quantity of labour which is necessary to their production, the rule which determines the respective quantities of goods which shall be given in exchange for each other, we must not be supposed to deny the accidental and temporary deviations of the actual or market price of commodities from this, their primary and natural price.

  In the ordinary course of events, there is no commodity which continues for any length of time to be supplied precisely in that degree of abundance, which the wants and wishes of mankind require, and therefore there is none which is not subject to accidental and temporary variations of price.

  It is only in consequence of such variations, that capital is apportioned precisely, in the requisite abundance and no more, to the production of the different commodities which happen to be in demand. With the rise or fall of price, profits are elevated above, or depressed below their general level, and capital is either encouraged to enter into, or is warned to depart from the particular employment in which the variation has taken place.

  Whilst every man is free to employ his capital where he pleases, he will naturally seek for it that employment which is most advantageous; he will naturally be dissatisfied with a profit of 10 per cent., if by removing his capital he can obtain a profit of 15 per cent. This restless desire on the part of all the employers of stock, to quit a less profitable for a more advantageous business, has a strong tendency to equalize the rate of profits of all, or to fix them in such proportions, as may in the estimation of the parties, compensate for any advantage which one may have, or may appear to have over the other. It is perhaps very difficult to trace the steps by which this change is effected: it is probably effected, by a manufacturer not absolutely changing his employment, but only lessening the quantity of capital he has in that employment. In all rich countries, there is a number of men forming what is called the monied class; these men are engaged in no trade, but live on the interest of their money, which is employed in discounting bills, or in loans to the more industrious part of the community. The bankers too employ a large capital on the same objects. The capital so employed forms a circulating capital of a large amount, and is employed, in larger or smaller proportions, by all the different trades of a country. There is perhaps no manufacturer, however rich, who limits his business to the extent that his own funds alone will allow: he has always some portion of this floating capital, increasing or diminishing according to the activity of the demand for his commodities. When the demand for silks increases, and that for cloth diminishes, the clothier does not remove with his capital to the silk trade, but he dismisses some of his workmen, he discontinues his demand for the loan from bankers and monied men; while the case of the silk manufacturer is the reverse: he wishes to employ more workmen, and thus his motive for borrowing is increased: he borrows more, and thus capital is transferred from one employment to another, without the necessity of a manufacturer discontinuing his usual occupation. When we look to the markets of a large town, and observe how regularly they are supplied both with home and foreign commodities, in the quantity in which they are required, under all the circumstances of varying demand, arising from the caprice of taste, or a change in the amount of population, without often producing either the effects of a glut from a too abundant supply, or an enormously high price from the supply being unequal to the demand, we must confess that the principle which apportions capital to each trade in the precise amount that it is required, is more active than is generally supposed.

  A capitalist, in seeking profitable employment for his funds, will naturally take into consideration all the advantages which one occupation possesses over another. He may therefore be willing to forego a part of his money profit, in consideration of the security, cleanliness, ease, or any other real or fancied advantage which one employment may possess over another.

  If from a consideration of these circumstances, the profits of stock should be so adjusted, that in one trade they were 20, in another 25, and in another 30 per cent., they would probably continue permanently with that relative difference, and with that difference only; for if any cause should elevate the profits of one of these trades 10 per cent. either these profits would be temporary, and would soon again fall back to their usual station, or the profits of the others would be elevated in the same proportion.

  The present time appears to be one of the exceptions to the justness of this remark. The termination of the war has so deranged the division which before existed of employments in Europe, that every capitalist has not yet found his place in the new division which has now become necessary.1

  Let us suppose that all commodities are at their natural price, and consequently that the profits of capital in all employments are exactly at the same rate, or differ only so much as, in the estimation of the parties, is equivalent to any real or fancied advantage which they possess or forego. Suppose now that a change of fashion should increase the demand for silks, and lessen that for woollens; their natural price, the quantity of labour necessary to their production, would continue unaltered, but the market price of silks would rise, and that of woollens would fall; and consequently the profits of the silk manufacturer would be above, whilst those of the woollen manufacturer would be below, the general and adjusted rate of profits. Not only the profits, but the wages of the workmen, would be affected in these employments. This increased demand for silks would however soon be supplied, by the transference of capital and labour from the woollen to the silk manufacture; when the market prices of silks and woollens would again approach their natural prices, and then the usual profits would be obtained by the respective manufacturers of those commodities.

  It is then the desire, which every capitalist has, of diverting his funds from a less to a more profitable employment, that prevents the market price of commodities from continuing for any length of time either much above, or much below their natural price. It is this competition which so adjusts the exchangeable1 value of commodities, that after paying the wages for the labour necessary to their production, and all other expenses required to put the capital employed in its original state of efficiency, the remaining value or overplus will in each trade be in proportion to the value of the capital employed.

  In the 7th chap. of the Wealth of Nations,2 all that concerns this question is most ably treated. Having fully acknowledged the temporary effects which, in particular employments of capital, may be produced on the prices of commodities, as well as on the wages of labour, and the profits of stock, by accidental causes, without influencing the general price of commodities, wages, or profits, since these effects are equally operative in all stages of society, we will3 leave them entirely out of our consideration, whilst we are treating of the laws which regulate natural prices, natural wages and natural profits, effects totally independent of these accidental causes. In speaking then of the exchangeable value of commodities, or the power of purchasing possessed by any one commodity, I mean always that power which it would possess, if not disturbed by any temporary or accidental cause, and which is its natural price.

  [1 ]Eds. 1–2 do not contain this paragraph.

  [1 ]Misprinted ‘changeable’ in ed. 3.

  [2 ]Bk. i, ch. vii, ‘Of the natural and market Price of Commodities.’

  [3 ]Ed. 1 ‘we may be permitted to’.

• Back to Top

  8: Two Papers on Parliamentary Reform [1818/2004]

  David Ricardo, 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. Chapter: TWO PAPERS ON PARLIAMENTARY REFORM

  Accessed from oll.libertyfund.org/title/206/38916 on 2010-02-03

  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.

  ---

  TWO PAPERS ON PARLIAMENTARY REFORM

  NOTE ON TWO PAPERS ON PARLIAMENTARY REFORM

  These two papers were published posthumously by M^cCulloch in the Scotsman newspaper.

  The Observations on Parliamentary Reform appeared in the issue of 24 April 1824, together with an editorial article which opened: ‘We shall be excused, we trust, for taking some pride, in being able to state, that our leading article of to-day is from the pen of the late Mr Ricardo; and when we have made this announcement, it is almost unnecessary to add, that, from what is due to the memory of the author, as well as to the public, the Essay has been printed verbatim, and without the alteration of a word or syllable, from the manuscript.’

  M^cCulloch reprinted it, under the same title, in his edition of Ricardo’s Works, 1846, with the following note: ‘The manuscript of the following Essay on Parliamentary Reform was given by Mr Ricardo, a short time before his death, to Mr M^cCulloch. The latter, not thinking it right that so important a paper should be withheld from the public, printed it in the Scotsman of the 24th of April 1824.’

  The Defence of the Plan of Voting by Ballot appeared in the Scotsman of 17 July 1824, which introduced it with the following paragraph: ‘The following Report of one of Mr Ricardo’s speeches in Parliament—most probably the one he delivered on the 24th April, 1823, in the debate on Lord John Russell’s motion—written in his own hand, was found among his manuscripts subsequently to his death. His friends have kindly communicated it to us, and we now publish it verbatim from the manuscript, without alteration of any kind whatever. Mr Ricardo was always a decided supporter of the system of election by ballot; and he has here stated, with that brevity, clearness, and comprehensiveness of view peculiar to himself, the grounds on which he approved of that system. We will not presume to say that Mr Ricardo has entirely obviated all the objections that have been urged against the ballot; but every one will readily allow that his defence of it is most able and ingenious, and that he has said almost all that can possibly be said in its behalf.’

  M^cCulloch reprinted this paper, with the note, in his edition of Ricardo’s Works, under the title ‘Speech on the Plan of Voting by Ballot’.

  Since the above has been in proof, the original MS of the two papers has been found with the Mill-Ricardo papers. It consists of a quire written over 38 pages in Ricardo’s hand, containing four items:

  1. ‘Extract of a letter from Hutches Trower to D. Ricardo dated 18 Oct^r. 1818.’

  2. ‘The answer to the above (dated 2^d. Nov^r. 1818).’

  3. Defence of the Plan of Voting by Ballot.

  4. Observations on Parliamentary Reform (3 and 4 have no titles in the MS).

  This combination confirms the conjecture that the papers were written in 1818.

  Besides, from Ricardo’s letter to Mill of 8 November 1818, we learn that of the ‘two discourses’ mentioned by Mill on 18 November one was a copy of the letter to Trower of 2 November and the other ‘a subsequent paper which I have just written’. The latter we may suppose, from the sequence in the MS, to be the Defence. The Observations would then be the third discourse of which Ricardo thought so ill that, after announcing in his letter to Mill of 23 November 1818 that he was sending another of his ‘wise discourses’, he added in the postscript: ‘On looking over the papers which I was going to send you, I am so discontented with it that I cannot send it.’ In the end, however, he sent it: ‘yesterday I dispatched to you the paper on reform ... of which I was ashamed at the moment that I was about to enclose it.’ (Letter to Mill, 28 December 1818.)

  The text printed in the Scotsman contains occasional changes in wording which, though slight, are not likely to have been introduced by the printer: this suggests that the two papers were printed from copies corrected by Ricardo or possibly by Mill or M^cCulloch. Therefore the text below adheres to that of the Scotsman, except for the correction of a few misprints.

  OBSERVATIONS ON PARLIAMENTARY REFORM1
  By the lateMr. Ricardo

  A monarch, or any other ruler, wishes to have no other check on his actions but his own will, and would, if he could, reign despotically, uncontrolled by any other power. In every country of the world some check, more or less strong, exists on the will of the Sovereign, even in those Governments which are supposed to be the most despotic. In Turkey, and at Algiers, the people or the army rise up in insurrection, and frequently depose and strangle one tyrant, and elevate another in his place, who is checked in his career by a dread of the same species of violence.

  The only difference, in this point, between the Governments of countries which are called free and those which are called arbitrary, is in the organization of this check, and in the facility and efficacy with which it is brought to bear upon the will of the Sovereign. In England the Monarch’s authority is checked by the fear of resistance, and the power of organizing and calling forth this resistance is said to be in the aristocracy and the people, through the medium of the two Houses of Parliament.

  It is undoubtedly true that the Monarch would not long venture to oppose the opinion decidedly expressed by the House of Commons, and therefore he may be said to be checked and controlled by those who appoint the House of Commons. All great questions are decided in the House of Commons; the House of Lords seldom gives any opposition to important measures to which the other House has given its sanction. Nor, when the constitution of that House is considered, is such opposition necessary, for the House of Commons is not appointed by the people, but by the Peers and the wealthy aristocracy of the country. The really efficient power of Government is, then, in the hands of the wealthy aristocracy, subject, indeed, to an irregular influence which I shall presently explain. What is the consequence of this?— A compromise between the aristocracy and the monarchy; and all the power and influence which Government gives are divided between them. The Monarch has the appointment to all places of trust and profit—to the Ministry—to the army and navy—to the courts of law; he has also the power of appointing to many other lucrative situations, such as ambassadors, heads and subordinates of public offices, &c. &c. Notwithstanding this great power, his measures can be controlled by the House of Commons, and, therefore, it is of importance to Government to get a majority in that House.

  This is easily obtained by giving a portion of these lucrative places to those who have the choice of the majority of the House of Commons; accordingly, it is well known that no means are so effectual for obtaining situations of trust and profit from the Crown as the possession of Parliamentary influence; and, as the appetite for lucrative places is insatiable, both in Ministers and their followers, and the oligarchy and their’s, places are often created for the men, and others are frequently continued after they have become unnecessary, for the advantage solely of these favoured individuals. If, then, there were no other check on both these bodies, England would not have to boast of a better Government than what exists in those countries in which it is called despotic. But, happily, there is another check, and that a tolerably efficient one, which is with the people, and would not, without a violent struggle, be wrested from them. The check on this Government, which operates on behalf of the people, is the good sense and information of the people themselves, operating through the means of a free press, which controls not only the Sovereign and his Ministers, but the Aristocracy, and the House of Commons, which is under its influence. This is the great safeguard of our liberties. Every transaction of the great functionaries of the state is, by means of the press, conveyed in two days to the extremities of the kingdom, and the alarm is sounded if any measure is adopted, or even proposed, which might in its tendency be hurtful to the community. This check, then, like others that we have been speaking of, resolves itself into the fear which government and the aristocracy have of an insurrection of the people, by which their power might be overturned, and which alone keeps them within the bounds which now appear to arrest them. The press, amongst an enlightened and well-informed people, is a powerful instrument to prevent misrule, because it can quickly organise a formidable opposition to any encroachment on the people’s rights, and, in the present state of information, perhaps there would not be found a minister who would be sufficiently daring to attempt to deprive us of it. This power, however, is irregular in its operation. It is not always easy to rouse the people to an active opposition to minor measures, which may be shewn to be detrimental to their interests—neither is it powerful, on ordinary occasions, in getting a repeal of those laws, which, however detrimental, have been long in force, and therefore it is in a certain degree braved. In spite of the thunders of the press men continue to be placed in parliament whose interests are often at direct variance with the interest of the people. The offices of state, and the lucrative situations under government, are not bestowed according to merit; bad laws continue to disgrace our statute-book; and good ones are rejected, because they would interfere with particular interests—wars are entered into for the sake of private advantage, and the nation is borne down with great and unnecessary expenses. Experience proves that the liberty of the press is insufficient to correct or prevent these abuses, and that nothing can be effectual to that purpose but placing the check in a more regular manner in the people, by making the House of Commons really and truly the representatives of the people. Of all the classes in the community the people only are interested in being well-governed; on this point there can be no dispute or mistake. Good government may be contrary to the interests of the aristocracy, or to those of the monarch, as it may prevent them from having the same emoluments, advantage, or power, which they would have if government was not busied about the happiness of the many, but chiefly concerned itself about the happiness of the few, but it can never be prejudicial to the general happiness.

  If, then, we could get a House of Commons chosen by the people, excluding all those, whether high or low, who had interests separate and distinct from the general interest, we should have a controlling body whose sole business and duty it would be to obtain good government. It is not denied that, in innumerable instances, the interest of the aristocracy and that of the people will be the same, and therefore many good laws and regulations would be made if the aristocracy were to govern without control. The same may be said of the Monarch, but in many important instances they will also be opposed, and then it is that we shall look in vain for good laws and for good government. A reform in the House of Commons then, the extension of the elective franchise to all those against whom no plausible reason can be urged that they have, or suppose they have, interest contrary to the general interest, is the only measure which will secure liberty and good government on a solid and permanent foundation. This is so self-evident that one is surprised that an argument can be offered against it; but, to do the opponents of this measure justice, they do not advance any direct argument against it; their whole endeavour is to evade it.

  A House of Commons such as you contend for, they say, would be a good, but how are you to obtain it? Has not the country flourished in spite of the imperfections you mention, and why would you wish to improve what is already demonstrated to be so good? The House of Commons is not chosen by the people generally, but it is chosen by men who have received a good and liberal education—whose characters are unimpeachable, and who are much better judges of what will conduce to the happiness of the people than they themselves are. By extending the franchise you open the door to anarchy, for the bulk of the people are interested, or think they are so, in the equal division of property, and they would choose only such demagogues as held out the hope to them that such division should take place. To which it may be answered, that although it be true that the country has flourished with a House of Commons constituted as ours has been, it must be shewn that such a constitution of it is favourable to the prosperity of the country, before such an argument can be admitted for its continuance. It is not sufficient to say that we have been successful, and therefore we should go on in the same course. The question to be asked is, notwithstanding our success has there been nothing in our institutions to retard our progress? A merchant may flourish although he is imposed upon by his clerk, but it would be a worthless argument to persuade him to keep this clerk because he had flourished while he was in his employ. Whilst any evil can be removed, or any improvement adopted, we should listen to no suggestions so inconclusive as that we have been doing well. Such an argument is a bar to all progress in human affairs.

  Why have we adopted the use of steam engines? It might have been demonstrated that our manufactures had flourished without them, and why not let well enough alone? Nothing is well enough whilst any thing better is within our reach; this is a fallacy which can only be advanced by the ignorant or designing, and can no longer impose on us.

  What signifies, too, the unimpeachable characters and the good education of those who choose the members of the House of Commons? Let me know what the state of their interests is, and I will tell you what measures they will recommend.

  If this argument were good for any thing, we might get rid of all the checks and restraints of law, as far at least as they regarded a part of the community. Why ask from Ministers an account of the public income and expenditure annually? Are they not men of good character and education?

  What need of a House of Commons or of a House of Lords? Are they to restrain the Sovereign? Why should you not place the fullest reliance in his virtue and integrity?

  Why fetter the Judges by rules, and burden them with Juries? Is it possible that such enlightened and good men could decide unjustly or corruptly? To keep men good you must as much as possible withdraw from them all temptation to be otherwise. The sanctions of religion, of public opinion, and of law, all proceed on this principle, and that state is most perfect in which all these sanctions concur to make it the interest of all men to be virtuous, which is the same thing as to say, to use their best endeavour to promote the general happiness.

  The last point for consideration is the supposed disposition of the people to interfere with the rights of property. So essential does it appear to me, to the cause of good government, that the rights of property should be held sacred, that I would agree to deprive those of the elective franchise against whom it could justly be alleged that they considered it their interest to invade them. But in fact it can be only amongst the most needy in the community that such an opinion can be entertained. The man of a small income must be aware how little his share would be if all the large fortunes in the kingdom were equally divided among the people. He must know that the little he would obtain by such a division could be no adequate compensation for the overturning of a principle which renders the produce of his industry secure. Whatever might be his gains after such a principle had been admitted would be held by a very insecure tenure, and the chance of his making any future gains would be greatly diminished; for the quantity of employment in the country must depend, not only on the quantity of capital, but upon its advantageous distribution, and, above all, on the conviction of each capitalist that he will be allowed to enjoy unmolested the fruits of his capital, his skill, and his enterprise. To take from him this conviction is at once to annihilate half the productive industry of the country, and would be more fatal to the poor labourer than to the rich capitalist himself. This is so self-evident, that men very little advanced beyond the very lowest stations in the country cannot be ignorant of it, and it may be doubted whether any large number even of the lowest would, if they could, promote a division of property. It is the bugbear by which the corrupt always endeavour to rally those who have property to lose around them, and it is from this fear, or pretended fear, that so much jealousy is expressed of entrusting the least share of power to the people. But the objection, when urged against reform, is not an honest one, for, if it be allowed that those who have a sacred regard to the rights of property should have a voice in the choice of representatives, the principle is granted for which reformers contend. They profess to want only good government, and, as a means to such an end, they insist that the power of choosing members of Parliament should be given to those who cannot have an interest contrary to good government. If the objection made against reform were an honest one, the objectors would say how low in the scale of society they thought the rights of property were held sacred, and there they would make their stand. That class, and all above it, they would say, may fairly and advantageously be entrusted with the power which is wished to be given them, but the presumption of mistaken views of interest in all below that class would render it hazardous to entrust a similar power with them—it could not at least be safely done until we had more reason to be satisfied that, in their opinion, the interest of the community and that of themselves were identified on this important subject.

  This concession would satisfy the reasonable part of the public. It is not Universal Suffrage as an end, but as a means, of good government that the partisans of that measure ask it for. Give them the good government, or let them be convinced that you are really in earnest in procuring it for them, and they will be satisfied, although you should not advance with the rapid steps that they think would be most advantageously taken. My own opinion is in favour of caution, and therefore I lament that so much is said on the subject of Universal Suffrage. I am convinced that an extension of the suffrage, far short of making it universal, will substantially secure to the people the good government they wish for, and therefore I deprecate the demand for the universality of the elective franchise—at the same time, I feel confident that the effects of the measure which would satisfy me would have so beneficial an effect on the public mind, would be the means of so rapidly increasing the knowledge and intelligence of the public, that, in a limited space of time after this first measure of reform were granted, we might, with the utmost safety, extend the right of voting for members of Parliament to every class of the people.

  But it is intolerable, because the House of Commons is not disposed to go the full length of what is perhaps indiscreetly asked of them, that therefore they should refuse to grant any reformation of abuses whatever; that against the plainest conviction they should assert that a House of Commons, constituted as this is, is best calculated to give to the people the advantages of good government; and that they should continue to maintain that the best interests of the people are attended to, when it is demonstrated that they not only are not, but cannot be, whenever they are opposed to the interests of those who are in full possession of power, namely, the King, and the Oligarchy, who are bribed to support his government.

  DEFENCE OF THE PLAN OF VOTING BY BALLOT1
  By the lateMr. Ricardo

  Sir—The general question of a reform in the representation of this House, has been so fully discussed, and so ably supported by many honourable gentlemen that have preceded me in the debate, that I shall not detain the House by offering any observations on it, but shall confine myself to the consideration of that part of the subject, which has been little noticed, but which, in my opinion, is of so much importance, that, without it, no substantial reform can be obtained:— I mean, Sir, the changing the present mode of open election for members of Parliament, and substituting in its room the secret mode, or ballot.

  In order to appreciate the advantages which will result from the proposed change, it may not be improper to state, as briefly as possible, to the House, the inconveniences attending the present mode of election; that, having the nature of the evil before them, they may be the better able to judge of the efficacy of the proposed remedy. By some, indeed, it may be thought a vain and useless occupation of the time of the House to recapitulate the evils of our present system, for it may with justice be asked, who amongst us is not acquainted with the bribery, the riots, the intoxication, and the immoralities of every description, which take place on the occasion of every general election? These disgusting facts are unfortunately too notorious, yet it may not be unuseful to submit them to the attention of the House.

  The scenes which occur at such times, would disgrace a barbarous people. The reign of the law appears to cease, and impunity to be proclaimed for every species of violence. A rude and brutal populace, the offscourings of our population, surround the hustings, and heap every sort of insult and indignity on the candidate who happens not to enjoy their favour. Dirt, filth, and often stones, are thrown at him—the most unmanly attacks are made upon his person, and it is frequently a task of difficulty to his friends to protect him from the effects of their savage and brutal animosity.

  Nor is it the candidate only that is thus exposed to their rage, but every elector is applauded, or hissed, caressed, or furiously attacked, as he may favour or oppose by his vote, the favourite of the mob. Idleness and the neglect of work always follow in the train of an election—they are succeeded by debauchery and intoxication, and for a period the country suffers under all the evils of anarchy. I know that these violences are in almost all cases committed by the lowest of the mob, that they are not to be imputed to the electors themselves, but to the assemblage of the idle and disorderly which every great town affords, but the evil is not less serious on that account, and does not less imperiously call on us for a remedy.

  These, however, constitute but one portion, and indeed a very inferior portion, of the evil which attends the present mode of election. Bad as it is, if even at this price we obtained a parliament freely chosen by the people, we should have some consolation, although it would be our duty to endeavour to retain the good, and get rid of what was bad in the system. But this consolation is not afforded us, and in addition to the evil which I have already mentioned, we have the far greater one to guard against, which arises from the influence exercised over the voters at elections. Of what use is it to mark with precision how low in the scale of rank the right of voting for members of parliament shall commence, if you take no steps to secure to the electors the right which you propose to accord to them? It is the most cruel mockery to tell a man he may vote for A or B, when you know that he is so much under the influence of A, or the friends of A, that his voting for B would be attended with destruction to him. He cannot justly be said to have a vote, unless he have the free exercise of it, without prejudice to his fortunes. Is this the case at present? Is it not a delusion to say that every freeholder of 40s. a year has a vote for a member of parliament, when in most cases he cannot vote as he pleases, without ruin to himself? It is not he who has the vote, really and substantially, but his landlord; for it is for his benefit and interest, that it is exercised on the present system. Of what advantage would be the reform that is proposed, of extending the elective franchise to all householders, or as others recommend, to all males of twenty-one years of age, if this increased number of electors were to be, as they now are, completely under the influence of the same men, or of men having precisely the same views and interests, as those who play so grand a part in returning members to parliament? The more extended the suffrage, the more influence would be possessed by Peers, and the wealthy aristocracy of the country, and therefore the more certainly should we have a parliament which would be their representatives, and the advocates of their particular interests, and not of the interests of the great mass of the people. In many populous cities, householders are now said to have votes for the representatives of their city; but are not the cases numerous in which they dare not openly exercise the right? Is it to be expected that they will expose themselves to a resentment which will overwhelm them, whether it be from their best customers, the rich consumers, if they are shopkeepers,—the magistrates, if they are publicans,—their employers, if they are clerks, and in subordinate situations,— or any other class, who may be supposed to have an influence over their property? By extending the suffrage, an additional security is afforded against bribery, because the greater the number of electors the more difficult will it be to provide funds for the purpose of directly influencing votes by means of bribes. But it must not be forgotten that bribery is only one of the modes, and by no means the most efficacious mode, by which voters are influenced. Mr. Bentham’s sagacity did not fail to discover that terror was the great instrument of influence and corruption. Votes are more effectually secured by the fear of loss than by the hope of gain. Those whose characters afford security against the offering of bribes, and who would think themselves disgraced by a practice which is universally condemned, do not disdain to make use of the persuasive instrument of fear. In its operation it is silent— it is not necessary to proclaim to the voter the danger which he runs of disobliging his landlord, or patron; it is understood without explanation, and no one who hears me, can doubt of its powerful effects on every occasion. Although, then, by extending the suffrage you weaken the corruptive effect of bribery, you increase that which is produced by alarm and fear, for in proportion as the fortunes of the voter are more humble, the more surely will he be under the influence of those who have the power to sway those fortunes. Happily a security can be found against this influence, but if it could not, I should deem that an improvement which should raise the qualification, and limit the number of voters; for the chance of finding an independent spirit in electors would be increased, if the qualification was raised to £100 per annum, rather than if it continued as it is, or were lowered below 40 shillings. These, then, are the evils against which we have to provide, and the House will readily perceive that those which arise from riots, intoxication, and idleness, are of a different description from those which are the consequence of undue influence exercised over the minds, directly or indirectly, of the electors; and accordingly the bill before you offers two distinct remedies. To obviate the first evil, it is proposed to take the votes throughout the country on the same day, and, instead of the elections being for the whole of a county, and held in one single place, that votes be received in several districts at the same time. To obviate the second, it is proposed that the ballot, or the secret mode of election, be substituted for the open mode.

  These two propositions are very distinct, and they should not be, as they often are, confounded; for one might be rejected, and the other adopted. Those, for example, who are of opinion that the public and noisy assemblage of the rabble about the hustings is attended with benefits outweighing the evils which have been stated, might reject that clause which proposes to take the votes by districts, but might nevertheless adopt the other which requires that the election should be by ballot. The people might assemble about the hustings as they now do; they might listen, or not listen, to the speeches of the candidates as their humour might dictate; they might shew all the usual marks of their sympathy or disapprobation, and yet the voting might be secret; and, on the contrary, those who are in favour of open voting, might approve of votes being given in districts, although they rejected the ballot.

  According to the best judgment which I can form on this important subject, we ought to adopt both these clauses. That respecting time and place of voting will give us sufficient security against the disgusting exhibitions and riotous proceedings which have hitherto attended elections. Through the medium of the press, the candidate may make known his pretensions; through the same channel, objections may be made to his principles, or to his former conduct—the press is open to all, and the candidates would no longer be subjected to an ordeal which is not a test of merit but of endurance. Because a man has the honest ambition of representing a populous city in Parliament, must he make up his mind to endure all the insults which can be heaped upon him by the lowest of the rabble? It is said, that it is fit his claims should be examined into,—that without preparation he should be called upon immediately to explain what has been ambiguous in his former conduct;—what are his principles on the grand questions which are likely to be submitted to him; and, that he should be called upon to speak on any other matters which may be proposed to him. This might be useful if he presented himself before an impartial tribunal, but those who make this objection, are bound to shew that candidates on both sides are fairly listened to, and that even the semblance of justice is extended to them. One of the arguments now offered in favour of the borough system, and it is one of considerable weight, is, that without such boroughs, many men of merit would never be in Parliament—and why? because they are troubled with modesty; and with the feelings of gentlemen, which makes it intolerable to them to submit to the injustice, the insolence, and the insults of the lowest of the rabble. That we may be sure of the services of these men, then, I demand that this clause be adopted. These public meetings, it has been said, are useful in giving a tone to public feeling, and raising the lowest of the community in his own estimation, by making him feel that he has a share in the government of his country. Can he be said to have this share if he is without a vote? Does he show his importance by spitting at the candidate, by throwing dirt and filth in his face? This is not calculated to raise him in his own estimation; and if it be right that he should have a voice in the government of his country, give him that voice, and allow him to exercise it legally on the same terms with the first elector in the land, but do not delude us or him, by giving him the shadow, and calling it the substance of power!

  The other clause, namely, that which establishes the ballot, appears to me to offer complete security against those evils which flow from the influence of power. If voting took place by ballot, all the influence now practised on voters would, in a great measure, cease; for, to what purpose would you threaten a man for the vote he should give, or how could you punish him for it when given, if by the regulation you were absolutely precluded from knowing for which candidate he voted? Establish the ballot, and every elector is from that moment in possession of a real and not of an imaginary privilege. Of what use would it be to threaten a publican with the loss of his licence, a farmer with the deprivation of his lease, a tradesman with the loss of your custom, when you can never know how he voted, unless he chose to communicate it to you? The elective franchise, if it should be thought expedient, might be extended. The very extension would secure you from direct bribery, for no fortune would be equal to bribe a nation of electors, and terror would cease to operate, for it would be in vain to endeavour to mark the victims. An honourable gentleman has said, that if the ballot were established it would not prevent candidates and the friends of candidates from endeavouring to get the promise of votes, and then he observes, that if the electors keep their promises, there will be no advantage from the ballot, as they will vote then precisely as they do now; but if they do not keep their promises, they will be guilty of an immoral act, which may justly be charged on this law. It is the latter proposition only which I am called upon to answer, for if the voters give and keep their promises, no objection can be made to the ballot on that account; it may be said to be useless, but cannot be proved to be pernicious. And with respect to the immorality of not keeping promises, the guilt would lie with those who exacted such unlawful promises. To make a promise of a vote which could not be conscientiously given, would be a crime, but it would be a still greater crime to keep it. The promise is unnecessary upon any other supposition than that of its not being right to perform it. What occasion to exact a promise of any man to do that which his own interest will lead him to do? and in giving his vote he is called upon by duty to act in conformity with his own interest. It may be expedient to instruct such a man, to enlighten him on the subject of his real interest, but here our efforts should cease, and we become criminal if we induce him to act contrary to the dictates of his own conscience, and, instead of condemning him for breaking a promise so criminally exacted and given, the most enlightened morality would teach and require that such promises should be violated. The law does not recommend or encourage any species of crime or immorality,—it is enacted with a view to correct an evil which is an insurmountable bar to good government; it requires that every man shall vote according to his conscience, without any deceit or subterfuge; and shall such a law be given up, because the enemies of good government may take advantage of the respect with which men ought to regard their promises, in order to subvert it. If the end we have in view be good, we must not be diverted from our purpose by any partial evil which may attend the means by which we are to attain it. All punishment is an evil, but is justified by the good end which it is to accomplish. It might much more rationally be objected to the excise laws, that they should not have been enacted because they offer temptations to crimes which would not have been committed but for those laws. And what shall we say of the laws against usury, and against the exportation of the coin? The end of these laws is bad—they are binding only on the conscientious, and have opened a wide door to the commission of the crimes of fraud and perjury. With these laws on our statute-book, are we to be discouraged from making one, which has the happiness of the people for its object, because it would be immoral (as it is alleged) to break a promise unlawfully and immorally exacted. But supposing that the breaking of such promises were immoral, would the practice be of long continuance? Would any man persevere in exacting promises, when he found by experience that the promisers did not consider them binding? He would not be tempted to continue an offence with great trouble to himself, as soon as he found that it was unattended with advantage. The immorality, then, to whomsoever it might attach, would soon be at an end; and the law would be efficacious without even this alloy.

  One Hon. Gentleman has observed, that he is prepossessed in favour of open voting, without being able to give any reason why he prefers it. To that Hon. Gentleman I might answer, that I have a different prepossession from him, and the instinct of my mind would be just as good, as an argument, as the instinct of his. In fact one mode of voting can be preferred to another only as means to an end, in themselves they are alike indifferent.

  To conclude, Sir, the establishment of the ballot would make this House what it ought to be, the real representatives of the electors, and not the representatives of those whose situation gives them a commanding influence over the will of the electors. I am not now considering whether it would be desirable that the elective franchise should be extended, kept on its present footing, or contracted within narrower limits, for on any of these suppositions, the ballot appears to me to be equally expedient. Whoever may be the electors, the representatives should represent them, and their interests, and not those whose interests may, on many occasions, be in direct opposition to theirs.

  [1 ]Scotsman, 24 April 1824.

  [1 ]Scotsman, 17 July 1824.

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  9: Evidence on the Usury Laws [1818/2004]

  David Ricardo, 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. Chapter: EVIDENCE ON THE USURY LAWS 1818

  Accessed from oll.libertyfund.org/title/206/38872 on 2010-02-03

  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.

  ---

  EVIDENCE ON THE USURY LAWS 1818

  NOTE ON THE EVIDENCE ON THE USURY LAWS

  The Committee took evidence from twenty-one witnesses representing the commercial and landed interests; the first to be heard was Ricardo. Almost every one of the witnesses declared that the Laws were either injurious, particularly to the landed interest, or inoperative. The Report of the Committee was presented on 28 May 1818 in the form of three Resolutions as follows:

  1. That the laws regulating or restraining the rate of interest have been extensively evaded, and have failed of the effect of imposing a maximum on such rate; and that of late years, from the constant excess of the market rate of interest above the rate limited by law, they have added to the expense incurred by borrowers on real security, and that such borrowers have been compelled to resort to the mode of granting annuities on lives, a mode which has been made a cover for obtaining higher interest than the rate limited by law, and has farther subjected the borrowers to enormous charges, or forced them to make very disadvantageous sales of their estates.

  2. That the construction of such laws, as applicable to the transactions of commerce as at present carried on, have been attended with much uncertainty as to the legality of many transactions of frequent occurrence, and consequently been productive of much embarrassment and litigation.

  The repeal of the Usury Laws took place by stages over a period of years from 1833 to 1854. It began with a clause in the Bank Charter Act of 1833 (3 & 4 Wm. IV c. 98) which exempted bills of exchange, not having more than three months to run, from the operation of the Usury Laws. An Act of 1837 (7 Wm. IV & 1 Vict. c. 80) also exempted bills of exchange of not more than twelve months’ currency; this measure, which was a temporary one, was prolonged by an Act of 1839 (2 & 3 Vict. c. 37) which also exempted loans of more than £10. These measures were further prolonged by Acts of 1843 (6 & 7 Vict. c. 45), 1845 (8 & 9 Vict. c. 102), and 1850 (13 & 14 Vict. c. 56). The Usury Laws were finally repealed by an Act of 1854 (17 & 18 Vict. c. 90).

  MINUTES OF EVIDENCE TAKEN BEFORE THE SELECT COMMITTEE ON THE USURY LAWS

  Jovis, 30° die Aprilis, 1818.

  Mr. Serjeant Onslow, in the Chair.

  David Ricardo, Esq. called in; and Examined.

  [1] Has your attention been called to the laws which restrain the rate of interest?

  Yes.

  [2] Have you that experience, to say, or have you perceived, whether those laws are beneficial or otherwise?

  I think otherwise.

  [3] In what respect do you think otherwise? It appears to me, from the experience which I have had on the Stock Exchange, that, upon almost all occasions they are evaded, and that they are disadvantageous to those only who conscientiously adhere to them.

  [4] Do you think that repealing those laws, would have the effect of raising or lowering the average rate of interest?

  I think that the effect would be but trifling; but if any thing, it would tend to lower the rate of interest.

  [5] When the funds afford a greater rate of interest than 5 per cent, do not the usury laws injure the commercial part of the world, with regard to discounts?

  Not only at that time, but at other times, for it often happens that the price of the funds afford a less rate of interest than 5 per cent, at the same time that the market rate of interest is much above 5 per cent.

  [6] But however, in point of fact, during the late wars, have or have not persons engaged in commerce, sustained injuries from the operation of the usury laws?

  I should think, that they had sustained injuries in consequence of those laws.

  [7] Have you any doubt of it? I have no doubt at all, as far as my experience goes, but those injuries have been diminished by the easy means of evading them.

  [8] Of successfully evading them? The evasion of the laws is the effect of the natural order in which these transactions take place.

  [9] In what manner evaded? In the particular market with which I am acquainted, namely, the Stock Market, they are evaded by means of the difference between the money price and the time price of stock, which enables a person to borrow at a higher rate of interest than 5 per cent, if possessed of stock, or to lend at a higher rate, if the difference between the money price and the time price, affords a higher rate.

  [10] Has that been acted upon extensively? Very extensively; it is the usual and constant practice.

  [11] The difference between the money and the time price, is that which is called “continuation;” is it not?

  Yes.

  [12] Was there not a trial some time ago, as to the legality of “continuation”?

  There was.

  [13] For some time, did not that trial diminish the practice very considerably, at least so far as making bargains for buying and selling to the same person?

  That trial did diminish such bargains.

  [14] Will you be kind enough to favour the Committee with your opinion with respect to these laws?

  As far as my experience goes in business, nothing is more easy than to evade them; and after that trial to which allusion has been made, the same practice was continued, by altering the quantity of stock, either for money or for time; on all former occasions, the same amount of stock was bought for one period, that was sold for another period; but some timid men, after that trial, thought they were perfectly safe by making those sums different quantities, although they differed but a trifle in amount; and they thought themselves equally safe in buying stock for money of one person, and selling it, at the same instant, for time to another.

  [15] Do you think that the supposed or real illegality tends, in any degree, to increase the rate of that Continuation?

  The dealing in stock, for Time, is, in many cases, an illegal transaction; and that therefore may sometimes have an effect on the Continuation. A man possessed of money, purchasing stock for ready money at one price, and selling for a future day at a higher price, may make more than the legal rate of interest by so doing; but as he may not be actually possessed of stock at the time of making the time bargain, it cannot be considered, in any shape, as a legal transaction, and he can have no legal remedy against the default of the purchaser.

  [16] I beg to ask whether I am to understand that, in general, these transactions by Continuation, are not strictly legal?

  In my opinion, the greater part of these transactions are not legal.

  [17] And you are of opinion, that that illegality raises the rate at which the borrower obtains the money?

  Exactly so; there would be more competition if it was not for that.

  [18] In this manner you conceive the usury laws, indirectly, to raise the rate of interest in these transactions, by compelling persons to resort to a practice not strictly legal?

  Yes.

  [19] Am I to understand that, in point of fact, by this Continuation, nothing is done, but that money is raised at a higher than the legal rate of interest?

  The transaction never has that complexion. A man bargains either for the purchase or the sale of stock, for money or time, and the rate of interest is never spoken of; it is the effect of the transaction, but never the avowed object of it.

  [20] That I understand; but I wish to ask, whether, in point of fact, the effect is not simply to obtain the use of money at a higher than the legal rate, though that is not the shape of the transaction?

  That is generally the object, but it frequently happens that the difference between the money and the time price of stock, may not afford so much as the market rate of interest, and may also be below the legal rate.

  [21] I am to understand, therefore, that this is a risk which the lender, so to speak, takes upon himself?

  There is no risk whatever in it, as far as regards the rate at which the money is lent or borrowed, because it is known at the time what rate of interest the difference between the money and time prices affords, and because the sum to be received by the lender is thereby defined and settled.

  [22] Is not that sum, or rather the profit to be derived by the lender, governed by the market rate of interest at that time?

  I can only say, that I think it is not.

  [23] How comes it that it is not? When preparations are making for a loan, large sales of stock are made, of which the seller may not be possessed, but which he may expect to replace by the share he may have in the loan to be contracted for; in such case, there may be rather a scarcity than otherwise of ready money stock in the market; the seller, who is not possessed of stock, will sell it at a small addition of price for time, and sometimes even under the money price.

  [24] In your opinion can the Government loans, and other public transactions in the funds, be carried on without purchasing and selling stock for Time, and will not the difference between the two prices be governed and depend on the market value of money, and not on the legal rate of interest?

  The Government loans could not, in my opinion, be carried on, if Time bargains were disused. The difference between the money price and the time price, does not always depend, as I have before stated, on the market rate of interest. In general, stock is in abundance; and in that case no inconvenience arises in depositing that as a security for money borrowed; but on some occasions stock exists in a degree of scarcity, and then, although the market rate of interest may be high, it may be inconvenient to the borrower to deposit this particular security; consequently the time price will be either very little above, or even below the money price.

  [25] I beg to ask if it is within your knowledge, and if it is your opinion, that what you have described as Continuation, or time bargains, embrace any dealings in money at all, or are they not rather speculations between the parties?

  In many cases, indeed in most cases, it is a speculation between the parties; but it is constantly had recourse to, as a means of borrowing and lending money.

  [26] In times of difficulty, do not the usury laws injure commerce by restricting discounts, and the making of loans to persons engaged in all branches of trade?

  In my opinion, they do.

  [27] Will you state to the Committee, if you think that any good effect is derived by the public from the usury laws?

  I think no good effect is derived from those laws.

  [28] Are you aware of any inconvenience that would result from the repeal of them?

  None, whatever.

  [29] Were there not a considerable number of persons, who formerly lent money upon Continuation, who were deterred from doing so by this trial, in which it seemed to be held by the Court to be usurious?

  The trial which took place was concerning Continuation upon scrip receipts, and not on stock. The transactions are similar to each other, but the facility of proof may be different.

  [30] Those were actions under the usury laws, were they not?

  They were.

  [31] But it was, I believe, one action to recover penalties under the usury laws?

  It was.

  [32] You have already said, that it did deter many persons from continuing to lend money on Continuation?

  Yes.

  [33] By so deterring them, had it not the natural operation to raise the rate of Continuation?

  I consider that rather as a question of science, which must require a good deal of consideration, because the money may be lent by these parties at the legal rate of interest, and thus it may come to the same borrowers by a circuitous route.

  [34] If you wished yourself to borrow money on Continuation, should you not be desirous that there should be in the market a great number of persons disposed to lend upon Continuation? Most certainly.

  [35] For what reason?

  Because it is probable the terms might be somewhat lower.

  [36] Does not the power of selling stock for money, and repurchasing it for time, afford great facility to the holders of stock, by enabling them for temporary purposes to procure money, without foregoing the advantage of repossessing their stock at a distant day?

  Most undoubtedly.

  [37] May not this advantage be considerably more than the excessive interest which the transaction may have obliged them to pay?

  Without any doubt at all.

  [38] What effect would the abrogation of the usury laws produce upon the financial operations of the Government, in time of war; I mean, in the negociation of loans?

  It would rather tend to facilitate them; the Government is not bound by the usury laws, for in allowing discount for prompt payment for a loan, they frequently give considerably more than 5 per cent.

  [39] When the legal rate of interest is 5 per cent, and the Government are enabled to borrow at a higher rate of interest, does it not proceed, as a necessary consequence, that they, the Government, are enabled to borrow when individuals are not?

  Certainly.

  [40] Does not the Government, therefore, obtain in this way, a preference in the money market, and thereby obtain a facility in the negociation of their loans?

  If the law was not evaded, such would be the effect; but, as I have already observed, it is completely evaded.

  [41] In the negociation of loans, have you ever known the laws for restricting interest to be taken into consideration in adjusting the terms?

  Never; and frequently, when loans are raised at an interest below the legal rate of interest, the mode in which the discount on prompt payment is calculated, affords a rate of interest of sometimes 7, 8, or 9 per cent.

  [42] Do not takers of loans calculate the advantages which result in Government stock transactions from the habit of evading the usury laws?

  Certainly; if those laws were not evaded, the contractor would not be able to give the minister such good terms; his transactions would be cramped, if he were prevented from borrowing at the market rate of interest.

  [43] What is the criterion by which you judge the market rate of interest, or is there any criterion at all?

  I know of no other criterion than the prices of the public securities, and the facility of raising money for short periods.

  [44] Do you not think that the price of the Government securities affords a very good criterion of the market rate of interest?

  Not a very good one; their price is a good deal influenced by speculation, and by the anticipation of political and financial events.

  [45] I would mean to speak of the average price of these securities, and not of their occasional fluctuations?

  I can hardly conceive any times in which these securities are not acted upon by the considerations I have stated.

  [46] Would you consider the price of exchequer bills as a criterion?

  As a better criterion than the price of the funds.

  [47] Would you not rather consider, that discount in the market was a more just criterion than the value of the public funds?

  No; because discounts are strictly regulated by the laws of usury.

  [48] I mean to confine it to discounts when interest is not above the legal rate, and there are cases when discounts are inferior to the legal rate?

  When the market rate of interest is below 5 per cent, then I think that the discount given on a bill is a very good criterion of the market rate of interest.

  [49] You have already said, that money may be raised by borrowing on Continuation; does not this give to the holder of stock a greater facility of raising money than other persons possess, who are holders of other property?

  I should think it does.

  [50] Are you acquainted with the nature of foreign loans? I never was engaged in any.

  [51] You do not know what is the discount of bills, or the mode of raising loans in France, Holland and Germany?

  No, I do not.

  [52] What are the grounds of your opinion of the principle by which the rate of interest is regulated?

  It is regulated by the demand and supply, in the same way as any other commodity; but the demand and supply itself is again regulated by the rate of profit to be made on capital.

  [53] Do you think there is anything in the nature of money, or of the transactions regarding the borrowing or lending of money, which distinguishes it from other commodities which find their value in the market, according to the proportion of demand and supply?

  None, whatever; the market rate of interest for money depends on the proportion between the borrower and the lender of capital, without reference to the quantity or value of the currency by which the transactions of the country are carried on.

  [54] Have you, in the course of your transactions, been acquainted with a case, in which any disadvantage could have been derived to the borrower, by the abrogation of the usury laws?

  None whatever; on the contrary, the abrogation of the usury laws would, upon all occasions, have been advantageous, in my opinion, to the borrower.

  [55] Are you not of opinion also, that their abrogation would be equally advantageous to the lender?

  I conceive there are cases in which their abrogation would not be quite advantageous to the lender, because he may exact a premium for the risk which the law imposes upon him.

  [56] But except in so far as he exacts a premium for his risk in breaking the law, you are of opinion he can derive no advantage from the usury laws?

  I think all his advantages may be referred to that principle.

  [57] Do you think that mercantile interests will be injured or served by these restraints of the usury laws upon interest?

  I have already given my opinion, that they would be much served by the abrogation of these laws.

  [58] If a person who is possessed of considerable capital in this country, or in any other country belonging to the United Kingdom, should wish to make the most of his money, and if he is restrained in this country by the Usury Act, do you not think it would be the means of his transferring his capital to another country, where he would obtain a greater rate of interest, by loan or discount?

  Undoubtedly, if the law be not easily evaded.

  [59] Do you not believe, that many have been injured by borrowing money upon annuities at a very high rate; and do you not believe, that many have been more injured by these means, than if they could have borrowed money at the market rate of interest?

  I have no knowledge of any such transactions; but my opinion is very decided, that they have been more injured by having been prevented from borrowing money at the market rate of interest.

• Back to Top

  10: Speeches to Parliament [1819/2004]

  David Ricardo, 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. Chapter: SESSION 1819

  Accessed from oll.libertyfund.org/title/206/38746 on 2010-02-03

  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.

  ---

  SESSION 1819

  POOR RATES MISAPPLICATION BILL
  25 March 1819

  Mr. Sturges Bourne moved for leave to bring in a bill, which, he declared, was intended to prevent the payment of the wages of labour out of the poor rates; no relief should in future be given to able-bodied labourers in employment, but their children should be provided for and set to work.

  Mr. Ricardo thought, that the two great evils for which it was desirable to provide a remedy, were, the tendency towards a redundant population, and the inadequacy of the wages to the support of the labouring classes; and he apprehended, that the measure now proposed would not afford any security against the continuance of these evils. On the contrary, he thought that, if a provision were made for all the children of the poor, it would only increase the evil; for if parents felt assured that an asylum would be provided for their children, in which they would be treated with humanity and tenderness, there would then be no check to that increase of population which was so apt to take place among the labouring classes. With regard to the other evil, the inadequacy of the wages, it ought to be remembered, that if this measure should have the effect of raising them, they would still be no more than the wages of a single man, and would never rise so high as to afford a provision for a man with a family.

  [On the second reading see below, p. 6.]

  FIRST REPORT FROM THE BANK OF ENGLAND COMMITTEE— CASH PAYMENTS BILL
  5 April 1819

  Mr. Peel, the chairman of the secret committee, presented their first report, which recommended that cash payments, which had been partially resumed, should be suspended until the final report of the committee had been received and a legislative measure passed thereupon; he moved for leave to bring in a bill to that effect. Mr. Tierney, a member of the committee, opposing the motion, said that the only effect of the bill would be to save a little expense to the Bank whereas ‘any sacrifice ought to be made rather than that good faith should not be preserved.’

  Mr. Ricardo began by requesting the indulgence of the House, which he hoped he should experience, especially as he was about to dispute the opinions of the right hon. gentleman1 who had just spoken with so much eloquence. It appeared to him very extraordinary, indeed, that the Bank should be called upon as the right hon. gentleman argued, to issue gold at 3l. 17s. while they were obliged to pay 4l. 1s. for that very gold. Those who obtained the gold upon such terms must, of course, profit by the difference, and they could only derive that profit by acting contrary to law—that was either by clandestinely exporting the gold, or by melting it down. Would parliament consent to allow such a class of persons to obtain profit at the expense of the Bank? Such a class was, indeed, he apprehended, the very last to which parliament would consent to grant any peculiar favour or protection. That the resumption of cash payments by the Bank must be preceded by a reduction of its paper issues, was quite obvious. But then that reduction ought to be gradual, and in order to enable the Bank to resume its cash payments, such a measure as that now proposed appeared to him essentially necessary. He approved of the views of the right hon. gentleman as to the provision of an adequate guard against the repetition of the dangers, hitherto resulting from the improvident conduct of the Bank. He also agreed, that before the Bank could pay in gold, it must take measures to replenish its coffers, and that to replenish its coffers by providing an adequate supply of gold, it must reduce its issue of notes. But, with a view to enable the Bank to resume its payments in cash, he was decidedly of opinion that the proposed measure was essentially necessary, and was sorry that it had not before now been adopted.

  Leave was given to bring in the bill, which was then passed.

  MR. LYTTELTON’S MOTION RESPECTING STATE LOTTERIES
  4 May 1819

  Mr. Lyttelton moved a series of resolutions for the abolition of State Lotteries.

  Mr. Ricardo supported the motion, and pointed out the evils which arose from the drawings of the lottery so often in the year. He quoted the resolutions of a society to which many of the ministers belonged, deprecating the lottery; and observed, that they were thus condemning, as individuals, the law which they came to support by their votes.1

  The House divided: for the motion, 84; against it, 133. Ricardo voted for the motion.

  SINKING FUND
  13 May 1819

  Mr. Grenfell moved for a committee on the sinking fund. The present system was for the commissioners for the redemption of the national debt to go four times a week into the city to purchase stock, which in effect ‘they bought with borrowed money—the money borrowed from the loan-contractors.’ ‘This was creating a new debt for no other purpose than to destroy an old one: selling new stock cheap in order to buy old stock dear.’ His object was to convince the House of the expediency of applying the sinking fund to diminish the loan which was to be raised for the service of the year. The saving to the public which might have been effected if this method had been applied from 1793 to 1813 amounted to 20,000,000l. and on the loan of 1815 the saving might have been upwards of 2,000,000l. Amongst those who differed from him in this opinion some were under a bias from self-interest. ‘Loan-contractors were not in his judgment exactly that description of persons by whose advice in these matters a chancellor of the exchequer ought to be governed. In 1814, the right hon. gentleman had stated in his place, that, having conferred with a number of gentlemen contracting for the loan with regard to the propriety of acting on his (Mr. Grenfell’s) suggestion, they all, with one exception only, signified their disapprobation of it, and recommended a loan of 24,000,000l. instead of 12,000,000l. The exception to which he alluded was that of his honourable friend (Mr. Ricardo),1 who, greatly to his credit, observed to the chancellor of the exchequer, that if he considered his own interest merely, he must agree with his brother contractors; but if he were to consult the advantage of the country, he should advise the application of the sinking fund, and a loan of 12,000,000l. only.’

  The Chancellor of the Exchequer objected to the motion, on the ground that it would fetter the discretion of government. As to the case of the loan in 1815 ‘it was true that a great profit had been made upon the loan alluded to, but it was contracted for previous to the battle of Waterloo, and the profit was derived from conquest, and the successful termination of hostilities.’ With regard to the supposed saving of 20,000,000l. upon all the loans contracted for during the war, if the system of applying to the sinking fund had been adopted, the sum mentioned did not exceed two per cent of the amount borrowed in that period. ‘Instead of a profit, however, a loss had been sometimes incurred, which would probably have balanced the amount of the saving. The contractors, too, would have objected, and offered less favourable terms.’ ‘One great advantage attending the present system was, that it produced a general steadiness of prices.... Were it not for the regular purchases made by the commissioners, there would be few real buyers, and persons under the necessity of selling would be at the mercy of stock-jobbers.’

  Mr. Ricardo said, that he understood the hon. mover to have argued, not that the commissioners, if subscribers for the loans, would have procured for the public the profit which arose from the events of war or peace; but that they would have retained for the public that regular premium which the contractors obtained independently of the events of peace or war—which they were entitled to for undertaking the risk of such extensive undertakings, but which of course, under the present plan, was lost to the public. In that opinion he heartily concurred, as he could not conceive the advantage which could arise from giving the commissioners sums to lay out in the purchase of stock, while sellers were sent by the government to supply them with the stock which they were to buy. The contractors for the loan brought their stock to market just in the same degrees as the commissioners purchased it: they did not dispose of it in the mass, but brought it weekly and daily to market to provide for their instalments. Any gentleman who supposed that if that process did not go on, it would be in the power of the jobbers to make hard terms with the sellers of stock, must have been perfectly ignorant of the stock market [Hear! hear!], for competition was no where carried to such an extent, and no where operated with more benefit to the public. His hon. friend had alluded to the opinion which he (Mr. Ricardo) had given before the chancellor of the exchequer in 1814. He had certainly then given the opinion which he had long entertained. He should have shrunk into the earth before those who had long known his sentiments if he had given any other; but he knew that those gentlemen who gave a contrary opinion, had given it just as conscientiously; for great and sincere differences of judgment on this subject existed in the city. To him it certainly appeared, that if the process of the sinking fund had an effect on the stock market, a similar process must produce an effect on all other markets in the country, and that, for instance, it must be contended that the chancellor of the exchequer could produce an effect on the corn-market, by sending a commissioner to buy a quarter of wheat, while he sent a contractor to sell the same quantity.

  The House divided on the motion: Ayes, 39; Noes, 117. Ricardo voted for the motion.

  POOR RATES MISAPPLICATION BILL
  17 May 1819

  On this bill [cp. above, p. 1] being brought in for the second reading,

  Mr. Ricardo opposed the bill, principally on the ground that it tended to increase the population. If at present there existed a difficulty in supporting the poor, in what situation would the country be placed in twenty years hence, when these children so educated grew up to manhood? The bill was only the plan of Mr. Owen, in a worse shape, and carried to a greater extent.

  The bill was then read a second time. On 11 June 1819 it was read a third time and passed.

  BANK OF ENGLAND— RESUMPTION OF CASH PAYMENTS
  24 May 1819

  The reports of the secret committee on the resumption of cash payments were taken into consideration and Mr. Peel, the chairman of the secret committee, moved a series of resolutions embodying their recommendations. The resolutions were as follows:

  1. —That it is expedient to continue the Restriction on payments in Cash by the Bank of England, beyond the time to which it is at present limited by law.

  2. —That it is expedient that a definite period should be fixed for the termination of the Restriction on Cash Payments; and that preparatory measures should be taken, with a view to facilitate and ensure, on the arrival of that period, the payment of the Promissory Notes of the Bank of England in the legal Coin of the Realm.

  3. —That in order to give to the Bank a greater control over the issues of their Notes than they at present possess, provision ought to be made, for the gradual repayment to the Bank of the sum of Ten Millions; being part of the sum due to the Bank, on account of Advances made by them for the public service, and on account of the purchase of Exchequer Bills under the authority of acts of the Legislature.

  4. —That it is expedient to provide, by law, that from the 1st February 1820, the Bank shall be liable to deliver, on demand, Gold of standard fineness, having been assayed and stamped at His Majesty’s mint, a quantity of not less than sixty ounces being required in exchange for such an amount of Notes of the Bank as shall be equal to the value of the Gold so required, at the rate of Four pounds one shilling per ounce.

  5. —That from the 1st October 1820, the Bank shall be liable to deliver, on demand, Gold of standard fineness, assayed and stamped as before mentioned, a quantity of not less than sixty ounces being required in exchange for such an amount of Notes as shall be equal to the value of the Gold so required, at the rate of £.3. 19. 6. per ounce.

  6. —That from the 1st May 1821, the Bank shall be liable to deliver, on demand, Gold of standard fineness, assayed and stamped as before mentioned, a quantity of not less than sixty ounces being required in exchange for such an amount of Notes as shall be equal in value to the Gold so required, at the rate of £.3. 17. 10½ . per ounce.

  7. —That the Bank may at any period between the 1st February 1820 and the 1st May 1821 undertake to deliver Gold of standard fineness assayed and stamped as before mentioned, at any rate between the sums of Four pounds one shilling per ounce, and £.3. 17. 10½. per ounce; but that such intermediate rate having been once fixed by the Bank, that rate shall not be subsequently increased.

  8. —That from the 1st May 1823, the Bank shall pay its Notes, on demand, in the legal Coin of the Realm.

  9. —That it is expedient to repeal the Laws, prohibiting the melting and the exportation of the Coin of the Realm.

  The first three resolutions were agreed to. To the fourth resolution Mr. Ellice proposed an amendment, namely, ‘That the Bank have it in its option to pay, after the 1st of May, 1821, either in legal coin, or in gold, at 3l. 17s. 10½ per oz.’ The amendment was supported by Mr. Tierney and opposed by the Chancellor of the Exchequer.1 Mr. Manning (a Bank director) objected to the fourth and subsequent resolutions because they ‘would have the effect of fettering the Bank so as to cause an inconvenient reduction of the currency.’

  [The transcript of this speech prepared for Hansard by Ricardo partly with cuttings from the Morning Chronicle’s report, is reproduced in the plate facing p. 332 below. In the text Hansard’s capitalization and spelling are retained, but other deviations from the MS are corrected.]

  Mr. Ricardo1 said, he was fully persuaded of the truth of the declaration of the hon. director, that the Bank wished to resume cash payments, but he was just as fully persuaded that they did not know how to set about it. When called before the committee, the directors individually admitted that the price of bullion and the rate of exchanges were affected by the amount of their issues; but when collected in their own court they resolved that “they conceive it to be their duty to declare, that they are unable to discover any solid foundation for such a sentiment.”2 And now, in the Remonstrance which they have made to the chancellor of the exchequer, they again admit that the exchanges are affected by their issues, for they condemn the measure recommended by the committee for restoring the exchange to par, on the ground of its being calculated to force them to contract the amount of their circulation, which they represent as fatal to the public interest.3 When they avowed such inconsistent opinions, and after the experience which the House had had of their conduct, it would be the highest indiscretion in parliament not to take out of their hands the preparations for the resumption of cash payments. He did not think this a question only between the Bank and ministers, as it had been argued by his right hon. friend (Mr. Tierney), but rather one between ministers and the Bank on one side, and the country on the other. He was therefore disposed to concur with his right hon. friend in any measure which might be devised to keep the ministers also under control. One principle was clear, and was of the utmost importance in the consideration of this subject,—it was this, that those who had the power of regulating the quantity of the circulating medium of the country, had the power of regulating the rate of the exchanges, and the price of every commodity. This power clearly resided in the hands of the directors of the Bank, and it was a most formidable one. It quite astonished him that Mr. Harman could imagine that it was in the power of an individual to influence the exchanges against the wish of the Bank;1 which was just as reasonable as to suppose that an individual could regulate the price of corn or any other commodity of general consumption. This question was one of immense importance in principle, but in the manner of bringing it about was trivial, and not deserving half an hour’s consideration of the House. The difficulty was only that of raising the currency 3 per cent in value2 [Hear, hear!]. And who could doubt that even in those states in which the currency was entirely metallic, it often suffered a variation equal to this, without inconvenience to the public [Hear!]. In this country we had nothing but paper in circulation, and therefore every variation in the value of our currency was shown by the price of gold, but where metal alone circulated, it could not be doubted that gold might, from various circumstances, become more or less valuable, and thus affect all contracts, though from there being no other standard to measure it by, its variations were less palpable. His particular reason for supporting the measure under consideration was this. By withdrawing paper, so as to restore the note to its bullion value (an alteration, by the bye, only of 3 per cent.), the House would have done all that was required [Hear, hear!]. But if the House adopted the proposition of the hon. gentleman (Mr. Ellice), another variation in the value of the currency would take place, which it was his (Mr. R.’s) wish to guard against. If that amendment were agreed to, an extraordinary demand would take place for gold, for the purpose of coinage which would enhance the value of the currency 3 or 4 per cent in addition to the first enhancement [Hear, hear!].—As to the plan under the consideration of the House, it was that which the Bank directors, if they were wise, should wish for [hear!]. They should wish to fill the circulation with paper, and so long as they had the privilege of giving gold bullion for their notes, there would be no coin in circulation—they would have the monopoly. They had no real interest in the depreciation of the currency; it would be rather their interest to raise it, even to double the value. They were in the situation of creditors, not of debtors; their whole capital being in money or other securities representing money [Hear, hear!]. As to the resolution which bore that the government should repay the Bank a certain sum, he could not agree with it. The House having taken a security that the currency should be of a certain value, they had done enough, and should not farther interfere with the proceedings of the directors, who should answer to their proprietors only for the management of their concerns. The Bank might, if this resolution were agreed to, feel some difficulty in putting forth the amount of currency which was required. For though what the directors thought a check, namely, the rate of interest on money, was no check at all as to the amount of issues, as Adam Smith, Mr. Hume, and others had satisfactorily proved; yet as the Bank directors were governed by certain traditional limits, or something like limits, in discounting to individual merchants, they might have difficulty in keeping up the requisite amount of currency.1 A director, in his evidence before the committee, had said, that the Bank did not confine themselves to this limit where the individual’s credit was undoubted; but it should be recollected that the Bank was a cautious and timid body, and if they had no other means of supplying the requisite amount of circulation but by discounting bills, he feared the public might suffer from a scarcity of currency. He was certainly for leaving them to conduct all such transactions according to their own discretion and pleasure, provided only that such a check was established as should guard against a redundancy. The proposed mode of resuming cash payments appeared to him the easiest that could be imagined. The Bank would be placed under no restraint at first, nor any sudden necessity of reducing its issues. An opportunity would be afforded of effecting the object in the most gradual manner; and even when bullion payments should be made at the Mint price, the inconvenience would be but inconsiderable. Till October 1820, the Bank need make no reduction, and then a slight one [hear!]; and he had no doubt that if they were cautious they might arrive at cash payments without giving out one guinea in gold. The Bank should reduce their issues cautiously; he only feared they would do it too rapidly [hear!]. If he might give them advice, he should recommend to them not to buy bullion, but even though they had but a few millions, if he had the management of their concerns, he should boldly sell. Every sale would improve the exchanges, and till gold fell to 3l. 17s. 6d. there would be no necessity for the Bank to make any purchases. He was only sorry that the Bank was not to be obliged by the resolutions to buy all the bullion offered to them at 3l. 17s. 6d. lest through excessive caution they might starve the circulation. The Mint, it was true, was to remain open to the public, who might coin the bullion which they obtained from the Bank. Mr. Mushett, whose evidence respecting the coinage was worthy of attention, from its accuracy and general ability, had stated, that with a capital of 300,000l. the Mint could supply the public with 12,000,000l. a year.1 Yet a year was a long time to wait for twelve millions, and it might easily happen, that in the interim between the reduction of the Bank issues and the supply afforded from the Mint, the country might seriously feel the deficiency. It was on that account that he should have wished a resolution inserted, to compel the Bank to give its notes for bullion (at 3l. 17s. 6d.) on demand. With the exception of this omission, the plan was, in his opinion, perfectly safe and gentle.— With regard to what had fallen from his right hon. friend (Mr. Tierney) respecting the graduated scale of payments not having been submitted to the directors, he referred him to the examination of Mr. Thornton before the Lords’ committee where he would see that that gentleman’s evidence was wholly in favour of the plan.1 He was quite astonished that such an alarm prevailed at a reduction of perhaps one million in four years, and could only ascribe it to the indiscreet language of the Bank2 [Hear, hear!]. The hon. director3 had that night told them not to withdraw confidence from the Bank. The House did not withdraw its confidence from the Bank from any doubt of its wealth, or integrity, but from a conviction of its total ignorance of the principles of political economy [hear, and a laugh]. The Bank had had ample time to reduce their issues, so as to lower the price of gold; yet, in spite of the times repeatedly fixed for the resumption of cash payments, they had never done so. It was not the business of the directors to consider the interest of the public. That was the business of his majesty’s ministers; and when the hon. director told them that the directors had lost so much on the purchase of gold, and so much on the issue of tokens, his question was, why had they done so? Their business was with the interest of the proprietors, for whom they were trustees, not with the interests of the public. The directors were answerable to the proprietors for these misapplications of their funds. He (Mr. R.) had been astonished that the undivided profits of the Bank had been so small, which he should have imagined, must have at least amounted to ten millions;4 but now, by the confession of the hon. gentleman, the matter was explained. The directors had scattered a million here and a million there according to their views of the wants of the ministry or the country, without any regard to the interest of the proprietors [Hear, hear!]. The hon. director had advised them not to cramp the currency, and had referred to their experience of 1797. But that was not a parallel case. It was a season of alarm and panic, when every man had wished to have gold in his house in fear of an invasion. His right hon. friend (Mr. Tierney) had asked, what, under the plan proposed was the holder of 10l. to do, for he could not get bullion at the Bank. According to the amendment, the right hon. gentleman was in no great hurry to give this poor man either bullion or specie. But were they doing nothing by the plan for the holders of notes of 10l.? The holder of a 10l. note would be improved in his condition; for by restoring the currency to its proper value, and by making 1,000l. worth what it purported to be, instead of what it now really was, worth only 970l., his note of 10l. would be proportionally increased in value. Although he could not go to the Bank for gold, he might resort to any goldsmith who would let him have the proportion of gold to which his note was entitled; and the difference to him would be so trifling, as not to be worthy of consideration in the decision of a great question.—It had been said, on the part of the Bank, that they were ready to pay, if repaid the advances which they had made to the government.1 But how came they to make those advances to government, if not assured of repayment at a certain time? The Bank had not been forced to make those advances, but the directors had such an extraordinary disposition to act as ministers [a laugh, and hear, hear!]. It would however, be better if those directors would rather attend to their own interests, and those of their constituents.—A most fearful and destructive depreciation had at one time taken place; but from that we had recovered, and he was happy to reflect that we had so far retraced our steps. We had nearly got home, and he hoped his right hon. friend would lend them his assistance to enable them to reach it in safety. He would venture to state that in a very few weeks all alarm would be forgotten, and at the end of the year, we should all be surprised to reflect that any alarm had ever prevailed at a prospect of a variation of 3 per cent in the value of the circulating medium. His own general opinion was, that an unfavourable state of exchange must always proceed from a redundant currency. If corn were imported and paid for in bullion it was a proof that bullion was the cheapest commodity. Suppose all the Bank-notes now in circulation to be withdrawn, and their place filled by gold coin, would not gold become infinitely cheaper? If our paper had been of any intrinsic value, it would, having become cheap from excess, have been exported also. He thought it right here to pay the tribute of his approbation to the late excellent regulations of the Mint.1 He entirely approved of making gold the standard, and of keeping silver as a token currency. It appeared to him to be a solid improvement in the system of our coinage. Nothing could be clearer than that government had the power, by limiting the quantity, to regulate the value of the silver; it was on that principle that the committee and all other persons recommended the reduction of paper currency. The hon. gentleman (Mr. J. P. Grant) indeed had observed, that the silver coin might be imitated abroad; supposing this to be the fact, the value of the silver coin might be lessened, but that of the gold would not therefore be raised. The silver was not a legal tender above 40s., and gold might always be demanded. It was true that 105l. might be offered in silver instead of 100l. in gold; but this could have no effect in altering the relation between gold and all other commodities. He should be happy to argue this question with the hon. member or with the noble “Old Merchant,”1 [a laugh!] on some occasion when it would be less irrelevant to the subject under consideration.—The hon. member sat down amidst loud and general cheering from all sides of the House.2

  Mr. Alderman Heygate then addressed the chair, but the impatience of the House produced a temporary confusion, in the midst of which, after one or two observations, the worthy alderman sat down.

  Lord Castlereagh then suggested that the debate be adjourned till the following day and the House rose at two o’clock.

  25 May 1819

  Mr. Pearse (a Bank director) ‘denied the assertion of an hon. gentleman opposite, that they were not competent to the conduct of their own affairs’; and also denied ‘most solemnly’ the assertion which had been made ‘that the Bank Directors had no serious wish to return to cash payments.’

  Mr. Ricardo, in explanation, denied his having said that the Bank were insincere in their declarations. He meant no personal hostility to them as individuals, or as a public body; but he was of opinion, that they had taken wrong steps, and that they did not understand the subject of the currency.

  On 26 May the resolutions were agreed to; and a bill or bills were ordered to be brought in by Mr. Peel and the Chancellor of the Exchequer.

  EXCHEQUER BILLS
  2 June 1819

  On the Chancellor of the Exchequer’s motion for a grant to pay off certain Exchequer Bills, Mr. Grenfell suggested that ‘as government were now on the eve of raising a large sum of money by loan’, the sinking fund should be taken in diminution of the loan. ‘This led him to another observation. A rumour was very prevalent to day, which he conceived was nothing but a calumny on the right hon. gentleman, and should continue so to conceive it, unless he had the right hon. gentleman’s own authority for believing it. It was a rumour, however, which every body had heard, namely, that the right hon. gentleman had communicated to certain loan-contractors, and to them alone, the amount of the loan which it was his intention to negociate. It must be perfectly unnecessary for him to observe, that if this rumour was true, the right hon. gentleman had given to those persons an undue advantage. It was most unquestionably the right hon. gentleman’s duty, when he made such a communication, to make it to the stock exchange, to the public—to make it general.’

  The Chancellor of the Exchequer replied that ‘in the conversations which he had held with a number of persons on nature of the financial measures which it might be most expedient to adopt, he had of course spoken on a great many points connected with those measures; but he denied having made any secret or private communication of his intentions, of which any unfair advantage could be taken.’

  Mr. Ricardo had heard a statement which set forth, whether correctly or not he could not say, all the particulars of the intended loan, the sum to be borrowed, and the days on which the several payments were to be made. These he understood had been made known to others by the chancellor of the exchequer, but not to him or to any one with whom he was connected.1 The usual course had been for the chancellor of the exchequer to give notice to the parties likely to subscribe to the loan, that on such a day he would expect them, and then when they attended him, to unfold his plan to them. To communicate his intentions to one party alone, was to give that party a great and manifest advantage over all the others. Whether such a communication had been made he did not know; but the rumour was so general, that he could not doubt the fact of some communication from the right hon. gentleman having been made.

  The Chancellor of the Exchequer again denied that he had made any other communications except such ‘as he should be very happy to make to the hon. gentleman who had just spoken, and to receive his advice with respect to them.’

  THE BUDGET
  9 June 1819

  The Chancellor of the Exchequer introduced the Budget and announced that a loan of 12 millions had been contracted that morning by competition on very advantageous terms and that, besides, 12 millions would be borrowed from the sinking fund for the service of the year; he also proposed that 3 millions should be raised by additional duties on malt, tobacco, tea, etc., and applied to meet the charges of the new loans. Mr. Grenfell, who opened the debate for the opposition, devoted most of his speech to an attack upon the Bank. Mr. Mellish (a Bank director) replied defending the Bank and concluded: ‘The hon. member for Portarlington (Mr. Ricardo), found fault with the Bank directors for not having attended sufficiently to the interests of the proprietors; the hon. member for Marlow (Mr. Grenfell), on the contrary, said, that the Bank had too many bonusses, and that the public ought to share in the profits. How were the directors to act so as to meet the wishes of both gentlemen?’

  Mr. Ricardo said, he had already opposed the grant of 3 millions towards a sinking fund, because he did not wish to place such a fund at the mercy of ministers, who would take it whenever they thought that urgent necessity required it. He did not mean to say that it would be better with one set of ministers than another; for he looked upon it that all ministers would be anxious, on cases of what they conceived emergency, to appropriate it to the public use. He thought the whole thing a delusion upon the public, and on that account he would never support a tax to maintain it. He would admit that some means should be resorted to for liquidating the public debt, and in this he agreed with the hon. member for Leicester1 that a great sacrifice should be made; but he could not go with him in thinking, that that ought to be a property tax. That would be attended with the same bad effects as the other plan. He would, however, be satisfied to make a sacrifice; the sacrifice would be a temporary one, and with that view he would be willing to give up as large a share of his property as any other individual.1 [Hear.] By such means ought the evil of the national debt to be met. It was an evil which almost any sacrifice would not be too great to get rid of. It destroyed the equilibrium of prices, occasioned many persons to emigrate to other countries, in order to avoid the burthen of taxation which it entailed, and hung like a mill-stone round the exertion and industry of the country. He therefore never would give a vote in support of any tax which went to continue a sinking fund; for if that fund were to amount to 8 millions, ministers would on any emergency give the same account of it as they did at present. The delusion of it had been seen long ago by all those who were acquainted with the subject; and it would have been but fair and sound policy to have exposed it. On the subject of the loan he had nothing to object. He gave credit to and thanked the chancellor of the exchequer, for his good management within the last two or three days. [a laugh]. It was, he conceived creditable to him to have effected the loan on such good terms, when it was considered that only a few days back the funds were at 65.2 But though he gave credit to the right hon. gentleman for his plan in one respect, it was but fair to his hon. friend (Mr. Grenfell) near him, to say that this was the advice which he had given long ago.1 An hon. Bank director had said that he (Mr. R.) was inconsistent with his hon. friend. He was not bound to agree in every opinion which his hon. friend might hold; but he did not think he was so inconsistent as was said. He would admit, that he had complained of the Bank not having divided their profits. The Bank had made profits no doubt. It was the duty of the directors to do the best for the proprietors; and it was also the duty of government to make as good a bargain for the country as they could. He could not approve of the Bank making presents to government,2 though he could not blame those to whom they were given, for making the most of their contracts with them.3

  After further debate,

  Mr. Ricardo wished to ask, whether it was to be understood that in the next year, as there would be 11 millions to be raised for the service of the year, and five millions to be paid to the Bank, there would be taken, as in the present year, 12 millions from the sinking fund, leaving the rest to be raised by way of loan?

  The Chancellor of the Exchequer declined to pledge himself.

  BANK ADVANCES BILL
  16 June 1819

  Mr. Peel moved for leave to bring in a bill to prohibit the Bank of England from making any advances to government unless distinctly authorised by parliament.

  Mr. Ricardo thought the Bank ought not to be in any way shackled in the management of their own affairs. Great inconveniencies, in the diminution of the circulating medium, might result from establishing too strict a limit on this subject.1

  The Chancellor of the Exchequer said, ‘it was not his opinion that any diminution of the circulating medium was necessary, nor did he believe that any such would take place.’

  Leave was then given. On 25 June the bill was passed.

  EXCISE DUTIES BILL
  18 June 1819

  The Chancellor of the Exchequer moved that the House should go into a committee on this bill [to raise three millions to be applied to the sinking fund by new taxes on malt, tobacco, tea, etc.; cp. above, p. 20]. The Marquis of Tavistock moved as an amendment, that consideration be postponed six months: it was shameful, he said, that the House of Commons, having relieved their own pockets by repealing the property tax, should now proceed to tax the poor; the only remedy for such practices was a reform of Parliament. The Chancellor of the Exchequer ‘denied that the new taxes would fall exclusively on the lower classes.’ Mr. Grenfell supported the amendment, ‘not because he thought the state of the representation corrupt, but because this was not, in his opinion, the proper moment to resort to a system of taxation.’ After several other members had spoken,

  Mr. Ricardo could not agree with the hon. gentleman (Mr. Lamb) that it was desirable to follow the precedent of 1784, at the conclusion of the American war, and to reestablish what he called a sinking fund. It appeared to him that that was the very period to which those who objected to the sinking fund would direct their attention in support of their arguments. What had become of that sinking fund? Had it realized the expectations which had been held out? Were we now less in debt in consequence of its establishment? No—the contrary was the fact; the sinking fund had been converted into facilities, which enabled the minister to contract new debt. It was true we had purchased with it 200 or 300 millions of stock in the market, but had we diminished the debt by those purchases? No, because we had, at the same time, borrowed a still larger sum to enable us to make the purchases. Because, in fact, the moment our expenditure exceeded our income we had a sinking fund in name only; and that part of the taxes which had been paid to the commissioners, and called a sinking fund for the extinction1 of debt, had been absorbed in providing for a new debt. A sinking fund was only useful—was only what it pretended to be—when a surplus of income was strictly applied to the purposes for which it was established—the extinction of debt. No appropriation of money under the name of sinking fund ever had, and, in his opinion, ever would be constantly applied to this purpose; it would always be considered by ministers as a resource of which they might avail themselves when they were under any difficulty, in raising money by new taxes. In this way had they got rid of the last sinking fund, and the same fate would await that which they now seemed solicitous to establish. The language of the noble lord (Castlereagh)1 confirmed him in his opinion of the use which would eventually be made of it; for he had told it to the House; he had told them that, by creating a sinking fund we should show other countries, we would not suffer ourselves to be insulted. If the sinking fund were applied to frighten other nations by being applied to the purposes of war, it could not be applied to the payment of debt, if money was to be raised to provide for the interest of money hereafter to be borrowed for a new war, there was no utility in making the people pay taxes now, to furnish the means of a war hereafter. It would be much better to let the money remain in their pockets, where it would not fail to accumulate, and not to impose new taxes until new necessities required them. He had a jealous distrust of raising money beyond immediate necessity, and placing it in the hands of ministers; not the present ministers only, but any ministers responsible to a House of Commons constituted like ours. He allowed that so long as we had, in time of war, a sum under the name of sinking fund which would exceed the peace expenditure, we had what would be a real sinking fund when the peace came. So long, for instance, as we had 10 millions called a sinking fund in time of war, while we borrowed near 20 millions merely for the temporary purpose of carrying on the war, we might in a restricted sense be said to have a sinking fund of 10 millions; for on the return of peace it would, if so applied, operate to the reduction of debt. But this was not the case in the last war; the amount of the sinking fund, instead of being really applied to the reduction of debt, had been applied to pay the interest of new debt. And, after all, the meaning was only this; that if when peace returned we could reduce our expenditure 10 millions annually below our income, we should be able annually to discharge 10 millions of debt; this surely might be done without the mysterious jargon about a fund which answered no purpose but that of delusion. As to the particular taxes, it was unnecessary for him to state his sentiments, seeing he was an enemy to taxation altogether. He could not, however, agree, that they fell on the labourer, because imposed on the objects he consumed. If, indeed, they were imposed on the luxuries of the labourer, they might in some measure diminish his comforts; but the more the articles taxed approached the nature of necessaries, the more completely would they fall on those who employed labourers. It had been said, that these taxes would fall upon the poor-rates; but that amounted to the same thing; for the poor-rates formed, in reality, a fund destined to support labour, however inconvenient it might be to pay it in that way. He perfectly concurred with the noble lord who moved the amendment, in his expressions as to the state of the representation in that House: he could not help expressing his opinion, that the people were not sufficiently represented in it. This might be some satisfaction to the hon. member for Middlesex (Mr. Mellish), who appeared to be pleased the other evening1 when he discovered a difference of opinion between him and his hon. friend (Mr. Grenfell), as the opinion which his hon. friend was fond of declaring on the subject of parliamentary reform, was diametrically opposite to that which he (Mr. R.) had immediately expressed.

  The House having gone into the committee, Mr. Lyttelton objected to the tax on malt, ‘that it was imposed on the only remaining luxury, if indeed it was not a necessary, of the poorer classes of this country. He then, adverting to the argument which had fallen from one of the highest authority on questions of political economy in this kingdom (Mr. Ricardo), namely, that a tax upon the necessaries of life did not fall heaviest on the poor; observed, that although he might be disposed to admit the truth of that principle, yet in this case, as being upon an article, the very last, as it might be said, before those necessaries, the duty did fall heaviest upon that class.’

  Mr. Ricardo explained. He said, that he hoped the House and his hon. friend would understand that he was not contending that the taxing of necessaries was not injurious to labourers, but that it was no more injurious to them than any other mode of taxation. In fact, all taxation had a tendency to injure the labouring classes, because it either diminished the fund employed in the maintenance of labour, or checked its accumulation. In the argument which he had used, he had supposed that it was necessary to raise a certain sum by taxes, and then the question was whether by taxing necessaries, the burthen would be particularly borne by the labouring classes. He thought not—he was of opinion that they would ultimately fall on the employers of labour, and would be only prejudicial to the labourers in the same way as most other taxes would be, inasmuch as they would diminish the fund employed in the support of labour.

  On 28 June the bill was passed.

  [The session closed on 13 July 1819.]

  SESSION 1819–1820

  SEDITIOUS MEETINGS PREVENTION BILL
  6 December 1819

  Parliament was called together in order to consider a series of measures (the Six Acts) for counteracting and suppressing ‘the seditious practices so long prevalent in the manufacturing districts of the country’ (speech of the Prince Regent on the opening of the session, 23 November 1819). Lord Castlereagh introduced the first of these measures, the Seditious Meetings Prevention Bill, on 29 November. It was read a second time on 2 December (when Ricardo voted No, with the minority). On 6 December the bill was again considered.

  Mr. Ricardo said, he was anxious very briefly to express his opinion on this subject. He thought that, in the course of this discussion, sufficient attention had not been given to the importance of the right to be curtailed. If the people’s right of meeting and petitioning consisted only in the right of meeting to petition for the removal of grievances, it was not of so much importance, and the curtailment of it was not of such serious interest. But the right was, a right of meeting in such numbers, and showing such a front to ministers as would afford a hope that bad measures would be abandoned, and that public opinion would be respected. It might be compared, in this view, with the right of that House to address the Crown. If the right of that House consisted in passing resolutions only, and if they could not follow up their resolutions by refusing the supplies, and by calling up a spirit of resistance in the country, the Crown could despise their interference. It was the same with the right of the people to petition. If they could not meet in such numbers as to make them be respected, their petitions would have no effect. At the same time, he admitted, that those meetings were attended with very great inconvenience. It could not be denied that circumstances might arise when the government should be fairly administered, and yet distress might arise from causes which the government could not control, and wicked and designing men might produce a great degree of mischief; it did not appear to him that such meetings were the sort of check which ought to exist in a well-administered government; but it was necessary to have some check, because if they left men to govern without any control in the people, the consequence would be despotism. The check which he would give, could be established only by a reform of parliament. Then, instead of petitioning, and from the worst part of the people perhaps, being the check, that House would become the best check which any government could have, and with that check the people would be perfectly satisfied. He had read with surprise the abhorrence of radical reform expressed by several members of that House. He believed there were among the advocates of that measure, designing and wicked men. But he also knew that there was a great number of very honest men who believed universal suffrage and annual parliaments were the only means of protecting the rights of the people, and establishing an adequate check upon government. He had the same object as they professed to have in view; but he thought that suffrage far from universal would effect that object, and form a sufficient check. He therefore thought it would be madness to attempt a reform to that extent, when a less extensive reform would be sufficient.

  On 13 December the bill was read a third time and passed; in the division (for, 313; against, 95) Ricardo voted against the bill.

  SIR W. DE CRESPIGNY’S MOTION RESPECTING MR. OWEN’S PLAN1
  16 December 1819

  Sir W. De Crespigny moved that a select committee be appointed to inquire into the plan of Robert Owen, Esq. for ameliorating the condition of the lower classes. The Chancellor of the Exchequer, opposing the motion, read an extract from Mr. Owen’s speech of 21 Aug. 18172 and declared that, ‘as an official individual, he could not agree to a grant of the public money for the establishment of a plan that had been introduced to the public by a speech, in which all religions were pronounced false, and all systems of government bad.’ Mr. Brougham supported the motion, although he rejected the principle upon which the plan was founded, ‘that of the increase of population being a benefit to the country.’

  Mr. Ricardo observed, that he was completely at war with the system of Mr. Owen, which was built upon a theory inconsistent with the principles of political economy, and in his opinion was calculated to produce infinite mischief to the community. Something had fallen from an hon. member on a former night, on the subject of the employment of machinery.3 It could not be denied, on the whole view of the subject, that machinery did not lessen the demand for labour; while, on the other hand, it did not consume the produce of the soil, nor employ any of our manufacturers4 . It might also be misapplied by occasioning the production of too much cotton, or too much cloth; but the moment those articles ceased in consequence to pay the manufacturer, he would devote his time and capital to some other purpose.1 Mr. Owen’s plan proceeded upon this—he who was such an enemy to machinery, only proposed machinery of a different kind: he would bring into operation a most active portion of machinery, namely, human arms. He would dispense with ploughs and horses in the increase of the productions of the country, although the expense as to them must be much less when compared with the support of men. He confessed he did not agree in the general principles of the plan under consideration, but he was disposed to accede to the proposition of a committee. Spade husbandry Mr. Owen recommended as more beneficial to production. He was not informed enough on the interests of agriculture to give an opinion, but that was a reason for sending the subject to a committee. For what did the country want at the present moment? A demand for labour. If the facts stated of spade husbandry were true, it was a beneficial course, as affording that demand. And though government or the legislature would not be wisely employed in engaging in any commercial experiment, it would be advantageous that it should, under present circumstances, circulate useful information and correct prejudices. They should separate such considerations from a division of the country into parallelograms, or the establishment of a community of goods, and similar visionary schemes.2 Before he sat down, he trusted the House would excuse his offering a few observations on what he considered the cause of the distresses of the country. He fully concurred in what had fallen from his hon. and learned friend1 on the subject of population. The proportion of the capital to population regulated the amount of wages, and, to augment them, it was important to increase the capital of the country. But when he heard honourable members talk of employing capital in the formation of roads and canals, they appeared to overlook the fact, that the capital thus employed must be withdrawn from some other quarter. The causes of the insufficiency of capital, and the consequent disproportion between wages and population, were to be attributed to many circumstances, for some of which government were not to blame. Supposing a country with a numerous population, large capital, and a limited soil, the profits of that capital will be smaller there, than in a country populous, with lesser portion of capital, and with a great extent of soil. This country was one of large capital, but of increasing population and of an extent of soil necessarily limited; of course profits would be lower in it than in countries which had not the same limitation: still, though the profits were smaller, the capital continued in this kingdom, not only because persons felt a solicitude to keep their property under their own eye, but because the same confidence was not reposed in the security of others: the moment, however, other kingdoms, by their laws and institutions, inspired greater confidence, the capitalist would be induced to remove his property from Great Britain to a situation where his profits would be more considerable: this arose from no fault in the government; but the effect of it was to produce a deficiency of employment and consequent distress. Then came the question, had we taken the proper steps to prevent the profits upon capital from being lower here than in other countries? On the contrary had we not done everything to augment and aggravate the evil? Had we not added to the natural artificial causes for the abduction of capital? We had passed corn laws, that made the price of that necessary of life, grain, higher than in other and neighbouring countries, and thus interfered with the article which was considered the chief regulator of wages. Where grain was dear, wages must be high, and the effect of high wages was necessarily to make the profits on capital low. A second cause arose out of the fetters upon trade, the prohibitions against the import of foreign commodities, when, in fact, better and cheaper than our own. This was done in a spirit of retaliation; but he contended, that whatever line of policy other nations pursued, the interest of this nation was different: wherever we could obtain the articles we wanted at the cheapest rate, there we ought to go for them; and wherever they were cheapest, the manufacture would be the most extensive, and the amount of it1 , and invitation to capital, the greatest. Another cause of the existing disposition to send capital out of the country was to be found in the national debt. Instead of paying our expences from year to year, Great Britain had constantly pursued a system of borrowing, and taxes were accumulated not only to pay the simple interest, but sometimes even the compound interest of the debt; and the amount was now so enormous, that it became a matter of calculation, whether it was worth a capitalist’s while to continue in a country where he not only obtained small profits, but where he was subjected to a great additional burthen. Every pecuniary motive impelled him rather to quit than to remain. For a great many of the various causes of the evil, some of the principal of which he had touched upon, there might not exist any immediate remedy. We had, however, a beneficial precedent in the proceedings of the last session. He alluded to the measures taken for a return to payments in specie; and he saw no inconvenience in keeping stedfastly to that system. Parliament had wisely extended the operations of that system over a number of years. They should follow the same course as to the corn laws. After the quantity of capital employed under the faith of legislative enactments in agriculture, it would be a great injustice to proceed to an immediate repeal of those laws. But that House should look to the ultimate good, and give notice, that after a certain number of years, such an injurious system of legislation must terminate. The same observation applied to our prohibitory commercial code. From the variety of interests now in operation under that system, it would not only be necessary to look, but to look stedfastly, to a distant but certain period for its repeal. With respect to the national debt, he felt that he entertained opinions on that point which by many would be considered extravagant. He was one of those who thought that it could be paid off, and that the country was at this moment perfectly competent to pay it off. He did not mean that it should be redeemed at par; the public creditor possessed no such claim—were he paid at the market price, the public faith would be fulfilled. If every man would pay his part of the debt, it could be effected by the sacrifice of so much capital—1 With respect to the objection, that the effect of that sacrifice would be to bring so much land into the market, that purchasers could not be found for such a glut, the answer was, that the stockholder would be eager to employ his money, as he received it, either in the purchase of land, or in loans to the farmer or landowner, by which the latter might be enabled to become the purchaser, particularly when the government was no longer in the market as a borrower. He was persuaded that the difficulty of paying off the national debt was not so great as was generally imagined; and he was also convinced that the country had not yet nearly reached the limits of its prosperity and greatness. It was only by a comparative reference to the state of other countries that the opposite opinion could be entertained, and such opinion would gain ground as long as so many unnatural temptations, by our policy at home, were held out to withdraw capital from the country. He repeated his conviction that Mr. Owen’s plan was in many parts visionary, but yet he would not oppose the appointment of a committee, if it were only for the purpose of seeing whether it was probable that the advantages which that gentleman expected from the use of spade husbandry could be realized.

  The House divided: Ayes, 16; Noes, 141. Ricardo voted for the motion.

  MOTION FOR PAPERS RESPECTING THE BANK OF ENGLAND AND EXCHEQUER BILLS
  22 December 1819

  Mr. Maberly moved for ‘an account, showing how the sum of five millions voted for the purpose of paying off debt owing to the Bank of England on the 5th July 1819 had been applied.’ The Chancellor of the Exchequer opposed the motion.

  Mr. Ricardo said, it appeared to him that the House would act very unwisely by interfering as to the arrangements entered into by government for the repayment of the 5,000,000l. of advances to the Bank. At the same time he was at a loss to conceive what danger could arise from giving any information upon the subject. It had been objected, that the production of that information would lead to extensive stock-jobbing. He thought it would have just the contrary effect; for stock-jobbing was always best assisted by secrecy —by the circumstance of some individuals possessing certain information, which the other parties, with whom they transacted their bargains, were ignorant of. Now, supposing the statement required were made known, no jobbing could take place; because every one would then know all that had occurred, as to the repayments. With regard to what had fallen from the chancellor of the exchequer, that the state of the exchanges afforded a means of knowing what capital was going out of the country, he thought very differently. Supposing he wished to invest a sum of 50,000l. in France, or any other country; might he not order his correspondent to invest the produce of the goods he had sent out (50,000l. for instance) in the public funds, or in other goods, or in lands? No alteration could take place in the exchanges, unless there was a bill negociated. The official accounts annually laid before the House, relative to our exports and imports, were such, that it was impossible to draw any correct or practical inference from them. He remembered to have heard it stated, that at the time of the union with Ireland, each of the two countries gave a relative and comparative statement of her exports and imports; when Ireland made out that she had exported the larger quantity of commodities to England, and England appeared to have exported the larger quantity to Ireland. No correct information, therefore, could be derived from such returns. He should vote for the motion of his hon. friend.

  The motion was negatived.

  PETITION OF THE MERCHANTS OF LONDON RESPECTING COMMERCIAL DISTRESS
  24 December 1819

  Mr. Irving presented a petition from the merchants and traders of London for an inquiry into the causes of the commercial distress. Mr. Grenfell and Mr. J. Smith spoke next.

  Mr. Ricardo was happy to hear it stated by all the hon. gentlemen who had spoken, that the laws enacted last year1 concerning the currency of the country, ought not to be disturbed. The country was, unquestionably, in a state of great distress, but he differed in opinion from his hon. friend who presented the petition as to the cause of that distress. His hon. friend thought that this country was in a state of forced currency, and that the evils both at home and abroad arose from the regulations which that House had made relative to the currency. That cause, however, he was convinced, was totally inadequate to produce such an effect, and therefore the evil must be traced to other sources. He might here remark, that his hon. friend had brought an unexpected accusation against him, namely, that he had proposed a plan for the payment of the public debt2 , but that he had not the merit of originality.3 Now, he did not think that he had ever claimed that merit, for he was aware that many persons before his time had taken a similar view of the subject, and he hoped that whatever might be the merit of the application which he had made of principles known to others, he had stated his opinions with becoming modesty. He conceived that the distress was chiefly to be ascribed to the inadequacy of the capital of the nation to carry on the operations of trade, manufacture, and commerce. But why was the capital more inadequate now than formerly? If the profits on capital were higher, and labour more productive in other countries, it could not be doubted that capital would be transferred to those countries: no proposition in Euclid was clearer than this. Now, he thought they had greatly aggravated this evil by bad legislation, and he had formerly mentioned instances.1 He had referred to the corn-laws as one example; and however unpopular the doctrine might be with some gentlemen, he would state his opinion freely, that he believed the corn-laws to have materially increased the evil. These laws had tended to raise the price of sustenance, and that had raised the price of labour, which of course diminished the profit on capital. But of all this evil, the national debt, and the consequent amount of taxation, was the great cause. Hence the main object of the legislature should be to provide for the payment of that debt, and that provision should commence its operation as soon as possible. For as this debt was chargeable upon all the capital of the country, it was obvious that any capital which went out of the country was exonerated from that charge, while the capital which remained was of course compelled to pay a greater proportion of debt and taxes. To guard against this evil, which was productive at once of individual injustice and national injury, the whole capital of the country ought to be assessed for the discharge of the public debt, so that no more capital should be allowed to go out of the country without paying its fair proportion of that debt. The execution of this plan might be attended with difficulty, but then the importance of the object was worthy of an experiment to overcome every possible difficulty. The whole of the plan through which he proposed the payment of the public debt, might in his view be carried into effect within four or five years. For the discharge of the public debt, he proposed that checks should be issued upon the government to each purchaser, which checks should be kept distinct from the ordinary circulating medium of the country, but should be received by the government in payment of taxes. Thus the debt might be gradually liquidated while the government continued gradually receiving the assessments upon capital to provide for that liquidation. He would not, however, dwell farther upon this chimerical project, as he understood it was considered by every one except himself, but proceed to the consideration of the petition. His hon. friend proposed, as particularly worthy of attention, that a committee of that House should inquire into certain restrictions upon commerce, with a view to their removal. But his hon. friend should reflect, that no immediate effect could be reasonably expected from the labour of such a committee for such a purpose, as the restrictions alluded to, however burthensome, could not be suddenly removed. This removal must, indeed, take place by slow degrees, entwined as they were with the general system of the trade of the country. But still great good might be expected from the investigations of such a committee, who would, he hoped, enter particularly into the consideration of the corn laws. His hon. friend had suggested that a certain modification should take place in the arrangements made towards the removal of the restrictions upon the Bank, namely, that the Bank should not be called upon to pay in bullion until the period arrived for such payment at the lowest rate. Now he, on the contrary, thought that it would be much more for the advantage of the Bank itself, to make the payments in the order already settled; because such payments being made gradually would serve to break the fall, and prepare the Bank for the complete resumption of metallic payments. The only modification, indeed, which he deemed desirable on this subject was, that the Bank should be called upon permanently to pay its notes in bullion, instead of coin; for he could not conceive the policy of incurring the expense of coining gold merely for the purpose of the currency, which could be answered as well, if not more conveniently, by paper. The only object to be provided for in this case was, that the real value of the paper should be equal to its denominative value, according to a settled and universal standard of value, or according to its nominal amount in coin.1 His hon. friend had recommended the establishment of two standards of value, namely, silver and gold; but this was a project, in his opinion, peculiarly objectionable, because, if there were two standards, there would be greater chance of variation, and the establishment of the least variable standard of value was the object to be desired, with a view to maintain the character of our currency.

  Mr. Brougham agreed with Ricardo on several points: ‘There was however one point on which he had wished so great an oracle,2 as he must ever consider him on such subjects, had not pronounced the decided opinion he had. He alluded to the possibility, or, if possible, the adviseableness of paying off the national debt. The proposition was not a new one—it had years ago been suggested by Mr. Hutcheson, indeed, he believed every chancellor of the exchequer had a similar proposition made to him every year. It had in more recent times been brought before the public by Dr. Watson, bishop of Landaff.1 ... The effect of such a measure would be to place the property for five years at the mercy of all the solicitors, conveyancers, and money-hunters, in the country.’

  [Parliament was adjourned on 29 Dec. 1819 and, following the death of George III, it was dissolved on 28 Feb. 1820.]

  [1 ]Mr. Tierney.

  [1 ]The New Times reports: ‘Mr. Ricardo arose amidst loud cries of Question! and partly from that circumstance, as well as from the very low tone of voice in which he spoke was almost entirely inaudible in the gallery during the few observations which he made. We understood the Hon. Member to say, that by the operation of the Lottery System, vices were thrown in the way of the people as a lure. The morality of the people was sacrificed for the sake of the tax raised from the Lottery, which was a consideration of far less importance than that which was sacrificed for it. The Hon. Member proceeded to trace the frequency of suicide in England to the operation of this tax, but his voice here became quite drowned amidst loud calls of Question! and coughing.’

  [1 ]That Ricardo was the individual alluded to had already been stated by Grenfell in the preface to his pamphlet of 1817, mentioned below, p. 22, n. 1.

  [1 ]Although the Resolutions were passed on 26 May in their original form, Ellice’s amendment was accepted on the third reading of the bill on 14 June; the Lords on 23 June changed the date from May 1821 to May 1822 and this was finally agreed to by the Commons on 25 June 1819.

  [1 ]The Times’s report opens: ‘Mr. Ricardo rose, amidst loud invitations.’

  [2 ]Resolution of the Court of Directors of the Bank of England, 25 March 1819, printed in the ‘Second Report from the [Commons’] Secret Committee on the Expediency of the Bank resuming Cash Payments’, 1819, p. 263.

  [3 ]‘Representation, agreed upon the 20th day of May 1819, by The Directors of The Bank of England, and laid before The Chancellor of The Exchequer’, in Parliamentary Papers, 1819, vol. iii.

  [1 ]See the evidence of Jeremiah Harman, late Governor of the Bank, to the Commons’ Committee on the Resumption of Cash Payments, appended to ‘Second Report’, 1819, pp. 41–2.

  [2 ]On 4 March, to the Commons’ Committee, Ricardo had given the figure as 5 or 6 per cent; on 24 March, to the Lords’ Committee, as 4 per cent, and now, on 24 May, 3 per cent. The variation in these figures reflected the falling market price of gold.

  [1 ]Cp. for this sentence The Times’s report: ‘Their [the Bank directors’] error was, in supposing that the rate of interest would always point out a proper limit to their issues; but the rate of interest had been proved both by Hume and Adam Smith to depend, not on the quantity of money, but on the profits on stock; even though they did not advance anything to government, it was in their power, by an excess of discounts, to make the circulation redundant. The Bank directors were, in the management of their discounts, he had some reason to believe, governed by old habits. One of their rules was, he understood, to fix a particular limit, beyond which they would not extend their accommodation to any individual.’ The references are to the evidence of Samuel Thornton, a Bank Director, to the Commons’ Committee, ‘Second Report’, 1819, p. 146; to Hume’s essay Of Interest; and to the Wealth of Nations, Bk. II, ch. iv; Cannan’s ed., vol. i, p. 335 ff.

  [1 ]See his evidence to the Lords’ Committee on the Resumption of Cash Payments appended to their ‘Reports’, 1819, p. 207.

  [1 ]‘Reports’, 1819, pp. 222–4.

  [2 ]The Times’s report adds ‘and to the remonstrance which they had addressed to government, and in which they actually sounded the alarm’.

  [3 ]Mr. Manning.

  [4 ]The surplus, according to the Commons’ Committee, was £5,202,320 (‘Second Report’, p. 4). Ricardo had estimated it at more than thirteen millions in 1816 (see above, IV, 135).

  [1 ]See the joint evidence of four Bank Directors to the Commons’ Committee, ‘Second Report’, 1819, p. 148.

  [1 ]The Proclamations of Feb. 1817 which made gold coin legal tender for any amount and silver coin only up to forty shillings.

  [1 ]Lord Lauderdale, who had published a few days before as a pamphlet Three Letters on the Causes of the Present State of the Exchanges, and Price of Gold Bullion, as printed in ‘The Times’ under the signature of ‘An Old Merchant’, with an Introductory Address by the Earl of Lauderdale, London, Budd and Calkin,1819.

  [2 ]Mallet, who was present at this debate, writes in his diary: ‘The phenomena of that night was Ricardo; who notwithstanding his slender footing in the House, his jewish name and his shrill voice, obtained the greatest attention, and was cheered throughout his speech: which altho’ very good and containing much sound argument yet had chiefly the character of broken and detached observations on the preceding speeches; with several traits of pleasantry, which were all successful.—A few days afterwards, the Duke of Wellington having met Ricardo at a large party at Lady Lansdowne’s, came up to him, congratulated him on his speech, and on the success of the measure, and remained in conversation with him for 20 minutes.’(J. L. Mallet’s MS Diary, entry headed ‘Session 1819’.)

  [1 ]Ricardo was preparing to make a bid for the loan.

  [1 ]Mr. Mansfield.

  [1 ]This is Ricardo’s first allusion in Parliament to his plan for a tax on capital; cp. below, p. 34.

  [2 ]On 4 June, when it was announced that only 12 millions were to be borrowed from the public, Consols rose from 66 to70. The loan was taken by Rothschild on 9 June on terms which involved the unusually low bonus of less than 1¼ per cent for the contractor. This was generally regarded as too low (Ricardo’s bid, which was the next highest, would have involved a bonus of over 2½ per cent), and on the same day the new Omnium fell to 1½ per cent discount.

  [1 ]See Substance of a Speech addressed to the House of Commons, on the 28th April, 1814, by Pascoe Grenfell, Esq. on the subject of applying The Sinking Fund towards Any Loans Raised for the Public Service, London, Bagster, 1817.

  [2 ]Should be ‘government making presents to the Bank’. Cp. next footnote.

  [3 ]The Times reports in addition: ‘It was therefore not inconsistent in him to wish that the Bank should share with the proprietors the profits they had made, and to say that the government might have made better bargains with them.’

  [1 ]The Times reports in addition: ‘With respect to Exchequer bills it appeared that the Bank was to be prohibited from purchasing them in the market. (no, no, from the Chancellor of the Exchequer.) If he misunderstood that part of the measure, he should be glad to be better informed.’

  [1 ]Misprinted ‘estimation’ in Hansard.

  [1 ]In his speech on 7 June 1819 (Hansard, XL, 944–5)

  [1 ]See above, p. 20.

  [1 ]Cp. Ricardo’s speech on Owen’s plan, at a meeting held in the Freemasons’ Hall on 26 June 1819, below, p. 467.

  [2 ]See below, VII, 177, n. 2.

  [3 ]On 9 December, in a debate on the State of the Manufacturing Districts, Mr. John Smith ‘alluded to the rapid inroad which machinery had made upon manual labour within only a few years. He did not mean to contend that this was not a great improvement upon the old system, but it was an undoubted fact that it had thrown a great many hands out of employment.’

  [4 ]Misprinted ‘manufactures’ in Hansard.

  [1 ]The last two sentences are reported in the British Press as follows: ‘He never could think that machinery could do mischief to any country, either in its immediate or its permanent effect. Machinery, indeed, in one way might be carried too far, that is, where it is employed in the manufacture of a particular commodity, as for instance, in the manufacture of cotton, but where the individual extended it too far it would not repay him, and he would be soon obliged to reduce it, or employ it in another channel.’

  [2 ]The Times reports in addition: ‘He was for ascertaining the fact; and as soon as the farmer knew that it was his interest to pursue a different system, he would adopt it as a matter of course.’

  [1 ]Mr. Brougham.

  [1 ]‘of it’ is possibly a misprint for ‘of profit’.

  [1 ]For the first allusion to this plan see above, p. 21; and on its hostile reception by ‘the most opposite parties’ see Ricardo’s letter to Trower, 28 Dec. 1819, below, VIII, 147.

  [1 ]Peel’s Bill, adopted in the previous session.

  [2 ]Hansard (following The Times) reports ‘plan for the regulation of the currency’; what seems to be the correct version is adopted above from the Morning Chronicle.

  [3 ]Mr. Irving had said that he could not agree with Ricardo’s ‘proposed plan for paying off the national debt. There was, he conceived, nothing new in this plan; and if the archives of the Exchequer were searched, similar plans might be found which had been offered very many times within the last 100 years’ (The Times’s report).

  [1 ]Above, p. 33.

  [1 ]The Morning Chronicle reports in addition: ‘Care being taken to make this provision, he could see no reason why that arrangement as to payments in bullion, which was now settled for only three years, should not be rendered permanent.’

  [2 ]This phrase was taken up by Cobbett, who thereafter always dubbed Ricardo ‘the Oracle’. In the Register of 20 May 1820 he writes: ‘This gentleman was, last session, called an Oracle by Mr. Brougham, and, by Mr. Wilberforce, he was described as a political economist, worthy of the esteem and admiration of his contemporaries.’ After a long quotation from the above speech he goes on: ‘That great ass, Perry, observed, the other day, that, the Inquisition being at an end in Spain, science would take a spread in the country; for that a Spaniard might now have “a Blackstone or a RICARDO in his library!” A Ricardo, indeed!... But this Perry is, at once, the most conceited coxcomb and the greatest fool in this whole kingdom... “A Ricardo! ” The empty, pompous fool, when it has taken but a few months to shew that “a Ricardo” is a heap of senseless, Change-Alley jargon, put upon paper and bound up into book; that the measure, founded upon it, must be abandoned, or will cause millions to be starved, and that it has since been proposed, even by the author himself to supplant it by a plan for paying off the Debt! “A Ricardo,” indeed!’ (Cobbett’s Weekly Political Register, 20 May 1820, pp. 700 and 708.)

  [1 ]See A Proposal for Payment of the Publick Debts (1714) in A Collection of Treatises relating to the National Debts and Funds, by Archibald Hutcheson, London, 1721; and An Address to the People of Great Britain, by Richard Watson, London, 1798.

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  11: Funding System [1820/2004]

  David Ricardo, The Works and Correspondence of David Ricardo, ed. Piero Sraffa with the Collaboration of M.H. Dobb (Indianapolis: Liberty Fund, 2005). Vol. 4 Pamphlets and Papers 1815-1823. Chapter: FUNDING SYSTEM AN ARTICLE IN THE SUPPLEMENT TO THE FOURTH, FIFTH AND SIXTH EDITIONS OF THE ENCYCLOPAEDIA BRITANNICA 1820

  Accessed from oll.libertyfund.org/title/205/38605 on 2010-02-03

  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.

  ---

  FUNDING SYSTEM
  AN ARTICLE IN THE SUPPLEMENT TO THE FOURTH, FIFTH AND SIXTH EDITIONS OF THE ENCYCLOPAEDIA BRITANNICA 1820

  NOTE ON ‘FUNDING SYSTEM’

  Trower, to whom Ricardo sent an offprint of the article, suggested that he should publish it also as a pamphlet, enlarging more on his plan for paying off the National Debt. Ricardo replied that he might try to do so at some future time. The article however was never published separately.

  The article was retained in the 7th and 8th editions of the Encyclopaedia Britannica. In the 8th edition the following note was prefixed to it by the Editor: ‘The article on The Funding System, by the late David Ricardo, Esq., has always been reputed so excellent that it has been considered advisable to retain it entire, and the supplement to it by his son will bring down the information on the subject to the present time.’ The supplement, signed ‘J.L.R.’, was written by John Lewis Ricardo, who was not the son, but the nephew of Ricardo.

  FUNDING SYSTEM

  Under this head we propose, first, to give an account of the rise, progress, and modifications of the Sinking Fund, accompanied with some observations as to the probability of its accomplishing the object for which it was instituted; and, next, briefly to consider the best mode of providing for our annual expenditure both in war and peace,—an inquiry necessarily involving the policy of that System of Funding of which the Sinking Fund has long been considered as one of the principal recommendations and props.

  I. On the subject of the Sinking Fund, we shall have frequent occasion to refer to the statements of Professor Hamilton, in his very valuable publication, entitled, An Inquiry concerning the Rise and Progress, the Redemption, and Present State of the National Debt of Great Britain.1 “The first plan for the discharge of the national debt, formed on a regular system, and conducted with a considerable degree of firmness,” says this able writer, “was that of the Sinking Fund, established in 1716. The author of this plan was the Earl of Stanhope; but as it was adopted under the administration of Sir Robert Walpole, it is commonly denominated from him. The taxes which had before been laid on for limited periods, being rendered perpetual, and distributed among the South Sea, Aggregate, and General Funds, and the produce of these funds being greater than the charges upon them, the surpluses, together with such farther surpluses as might afterwards accrue, were united under the name of the Sinking Fund, being appropriated for the discharge of the national debt, and expressly ordained to be applicable to no other purpose whatever. The legal interest had been reduced from six to five per cent. about two years before; and as that reduction was conformable1 to the commercial state of the country, government was now able to obtain the same reduction on the interest of the public debt, and apply the savings in aid of the Sinking Fund. In 1727, a further reduction of the interest of the public debt, from five to four per cent. was obtained, by which nearly 400,000l. was added to the sinking fund. And, in the year 1749, the interest of part of the debt was again reduced to 3½ per cent. for seven years, and to 3 per cent. thereafter; and, in 1750, the interest of the remainder was reduced to 3 per cent. for five years, and to 3½ per cent. thereafter, by which a further saving of about 600,000l. was added to the sinking fund.”

  This sinking fund was for some time regularly applied to the discharge of debt. The sums applied, from 1716 to 1728, amounted to 6,648,000l., being nearly equal to the additional debt contracted in that time. From 1728 to 1733, 5,000,000l. more were paid. The interest of several loans, contracted between 1727 and 1732, was charged upon surplus duties, which, according to the original plan, ought to have been appropriated to the sinking fund.

  “Soon after, the principle of preserving the sinking fund inviolable was abandoned. In 1733, 500,000l. was taken from that fund, and applied to the services of the year.”—“In 1734, 1,200,000l. was taken from the sinking fund for current services; and, in 1735, it was anticipated and mortgaged.” The produce of the sinking fund, at its commencement in 1717, was 323,437l. In 1776, it was at its highest amount, being then 3,166,517l.; in 1780, it had sunk to 2,403,017l.

  “The sinking fund would have risen higher, had it not been depressed, especially in the latter period, by various encroachments . It was charged with the interest of several loans, for which no provision was made; and, in 1772, it was charged with an annuity of 100,000l., granted in addition to the civil list. During the three wars which were waged while it subsisted, the whole of its produce was applied to the expence of the war; and even in time of peace, large sums were abstracted from it for current services. According to Dr. Price, the amount of public debt paid off by the sinking fund, since its first alienation in 1733, was only three millions, paid off in 1736 and 1737; three millions in the peace between 1748 and 1756; two millions and a half in the peace between 1763 and 1775; in all, eight millions and a half.

  “The additional debt discharged during these periods of peace was effected, not by the sinking fund, but from other sources.

  “On the whole, this fund did little in time of peace, and nothing in time of war, to the discharge of the national debt. The purpose of its inviolable application was abandoned, and the hopes entertained of its powerful efficacy entirely disappointed. At this time, the nation had no other free revenue, except the land and malt-tax granted annually; and as the land-tax during peace was then granted at a low rate, their produce was inadequate to the expence of a peace establishment, on the most moderate scale. This gave occasion to encroachments on the sinking fund. Had the land-tax been always continued at 4s. in the pound, it would have gone far to keep the sinking fund, during peace, inviolate.”

  This fund terminated in 1786, when Mr. Pitt’s sinking fund was established.

  To constitute this new fund, one million per annum was appropriated to it by Parliament, the capital stock of the national debt then amounting to 238,231,248l.

  This million was to be allowed to accumulate at compound interest, by the addition of the dividends on the stock which it purchased, till it amounted to four millions, from which time it was not further to increase. The four millions were then annually to be invested in the public funds as before, but the dividends arising from the stock purchased were no longer to be added to the sinking fund for the purpose of being invested in stock; they were to be applied to the diminution of taxes, or to any other object that Parliament might direct.

  A further addition to this fund was proposed by Mr. Pitt, and readily adopted, in 1792, consisting of a grant of 400,000l. arising from the surplus of the revenue, and a further annual grant of 200,000l.; but it was expressly stipulated, that no relief from taxation should be given to the public, as far as this fund was concerned, till the original million, with its accumulations, amounted to four millions. The addition made to the fund, by the grant of 400,000l., and of 200,000l. per annum, together with the interest on the stock those sums might purchase, were not to be taken or considered as forming any part of the four millions. At the same time (in 1792), a sinking fund of a new character was constituted. It was enacted, that, besides a provision for the interest of any loan which should thence-forward be contracted, taxes should also be imposed for a one per cent. sinking fund on the capital stock created by it, which should be exclusively employed in the liquidation of such particular loan; and that no relief should be afforded to the public from the taxes which constituted the one per cent. sinking fund, until a sum of capital stock, equal in amount to that created by the loan, had been purchased by it. That being accomplished, both the interest and sinking fund were to be applicable to the public service. It was calculated, that, under the most unfavourable circumstances, each loan would be redeemed in 45 years from the period of contracting for it. If made in the 3 per cent., and the price of that stock should continue uniformly at 60, the redemption would be effected in 29 years.

  In the years 1798, 1799, and 1800, a deviation was made from Mr. Pitt’s plan, of providing a sinking fund of one per cent. on the capital stock created by every loan, for the loans of those years had no sinking fund attached to them. The interest was charged on the war-taxes; and, in lieu of a one per cent. sinking fund, it was provided, that the war-taxes should continue during peace, to be then employed in their redemption, till they were all redeemed.

  In 1802, Lord Sidmouth, then Mr. Addington, was Chancellor of the Exchequer. He being desirous of liberating the wartaxes from the charges with which they were encumbered, proposed to raise new annual permanent taxes for the interest of the loans of which we have just spoken, as well as for that which he was under the necessity of raising for the service of the year 1802; but he wished to avoid loading the public with additional taxes for a one per cent. sinking fund on the capitals created by those loans, and which capitals together amounted to 86,796,375l. To reconcile the stockholder to this arrangement, he proposed to rescind the provision, which limited the fund of 1786, to four millions, and to consolidate the old and the new sinking funds, i.e. that which arose from the original million per annum, with the addition made to it of 200,000l. per annum subsequently granted, and that which arose from the one per cent. on the capital of every loan that had been contracted since 1792. These combined funds he proposed should from that time be applied to the redemption of the whole debt without distinction; that the dividends arising from the stock purchased by the commissioners for the reduction of the national debt should be applied in the same manner; and that this arrangement should not be interfered with till the redemption of the whole debt was effected.

  In February 1803 the debt amounted to 480,572,470l., and the produce of the joint sinking fund to 6,311,626l. In 1786 the proportion of the sinking fund to the debt was as 1 to 238, in 1792 as 1 to 160, and in 1803 as 1 to 77.

  This was the first deviation of importance from Mr. Pitt’s plan; and this alteration made by Lord Sidmouth was not, perhaps, on the whole, injurious to the stockholder. He lost, indeed, the immediate advantage of an additional sinking fund of 867,963l., the amount of 1 per cent. on the capitals created by the loans of 1798, 1799, 1800, and 1802; “but, in lieu,” says Mr. Huskisson, “of this sinking fund, a reversionary sinking fund was created to commence, indeed, in about twelve to fifteen years from that time; but to be of such efficacy when it should commence, and to be so greatly accelerated by subsequent additions in its progress, as, under the most unfavourable supposition, to be certain of reducing the whole of this debt within 45 years. This reversionary sinking fund was to arise in the following manner; by continuing the old sinking fund at compound interest, after it should have reached its maximum of four millions; and by continuing also the new sinking fund or aggregate of the one per cents of the loans since 1792, after such one per cents should have liquidated the several loans, in respect of which they are originally issued. There is nothing, therefore, in the act of 1802, which is a departure from the spirit of the act of 1792.”*

  The next alteration that was proposed to be made in the sinking fund was in 1807 by Lord Henry Petty, then Chancellor of the Exchequer. His plan was extremely complicated; and had for its object, that which ministers are too much disposed at all times to view with complacency, namely, to lessen the burthen of taxation at the present, with the certainty of aggravating its pressure at a future day.

  It was estimated by Lord Henry Petty that the expences of the country during war would exceed its permanent annual revenue by thirty-two millions. For twenty-one millions of this deficiency, provision was made by the war-taxes, the property-tax amounting to 11,500,000l., and the other wartaxes to 9,500,000l. The object then was to provide eleven millions per annum. If this sum had been raised by a loan in the three per cents, when their price was 60, provision must have been made by taxes for the interest and sinking fund, so that each year we should have required additional taxes to the amount of 733,333l. But Government wished to raise the money without imposing these additional taxes, or by the imposition of as few as circumstances would permit. For this purpose, they proposed to raise the money required, by loan, in the usual way, but to provide, out of the war-taxes, for the interest and redemption of the stock created. They proposed to increase the sinking fund of every such loan, by taking from the war-taxes 10 per cent. on its amount for interest and sinking fund, so that if the interest and management absorbed only 5 per cent.; the sinking fund would also amount to 5 per cent., if the interest amounted to 4 per cent., the sinking fund would be 6 per cent. The sums proposed to be borrowed, in this manner, were twelve millions for the first three years, fourteen millions for the fourth, and sixteen millions for each succeeding year, making together, in fourteen years, 210 millions, for which, at the rate of 10 per cent., the whole of the war-taxes would be mortgaged. It was calculated, that, by the operation of the sinking fund, each loan would be paid off in fourteen years from the time of contracting for it; and, therefore, the 1,200,000l. set apart for the interest and sinking fund of the first loan would be liberated and available for the loan of the fifteenth year. At the end of fifteen years a like sum would be set free, and so on each succeeding year, and thus loans might be continued on this system, without any limitation of time.

  But these successive sums could not be withdrawn from the war-taxes, for interest and sinking fund on loans, and be at the same time applied to expenditure; and, therefore, the deficiency of eleven millions, for which provision was to be made, would, from year to year, increase as the war-taxes became absorbed, and at the end of fourteen years, when the whole twenty-one millions of the war-taxes would be absorbed, instead of eleven millions, the deficiency would be thirty-two millions.

  To provide for this growing deficiency, it was proposed to raise supplementary loans, increasing in amount from year to year; and for the interest and sinking fund on such loans, provision was to be made in the usual way by annual permanent taxes; on these loans the sinking fund was not to be more than 1 per cent.

  By the plan proposed, in fifteen years from its commencement, on the supposition of the war continuing so long, the regular loan would have been twelve millions, and the supplementary loan twenty millions.

  If the expences of the war should have exceeded the estimate then made, provision for such excess was to have been made by other means.

  The ministry who proposed this plan, not continuing in office, the plan was acted upon only for one year. “In comparing the merit of different systems,” says Dr. Hamilton,1 “the only points necessary to be attended to are the amount of the loans contracted—the part of these loans redeemed—the interest incurred—and the sums raised by taxes. The arrangements of the loan1 under different branches, and the appropriation of particular funds for payment of their respective interests, are matters of official regulation; and the state of the public finance is neither the better nor the worse, whether they be conducted one way or other. A complicated system may perplex and mislead, but it can never ameliorate.” Accordingly, Dr. Hamilton has shown,2 that the whole amount of taxes that would have been paid in twenty years, for an annual loan of eleven millions on the old plan of a sinking fund of 1 per cent., would be 154 millions. On Lord Henry Petty’s plan, these taxes would, in the same time, have been ninety-three millions, —a difference in favour of Lord Henry Petty’s plan of sixty-one millions; but to obtain this exemption we should have been encumbered with an additional debt of 119,489,788l. of money capital, which, if raised in a 3 per cent. stock at 60, would be equal to a nominal capital of 199,149,646l.

  The sinking fund was established with a view to diminish the national debt during peace, and to prevent its rapid increase during war. The only wise and good object of war-taxes is also to prevent the accumulation of debt. A sinking fund and wartaxes are only useful while they are strictly applied to the objects for which they are raised; they become instruments of mischief and delusion when they are made use of for the purpose of providing the interest on a new debt.

  In 1809, Mr. Perceval, who was then Chancellor of the Exchequer, mortgaged 1,040,000l. of the war-taxes for the interest and sinking fund of the stock he funded in that year.

  By taking more than a million from the war-taxes, not for the annual expenditure, but for the interest of a loan, Mr. Perceval rendered it necessary to add one million to the loan of the next and all following years; so that the real effect of this measure differed in no respect from one which should have taken the same sum annually from the sinking fund.

  In 1813, the next, and most important alteration was made in the sinking fund. Mr. Vansittart was then Chancellor of the Exchequer. It has been already observed, that the national debt amounted to 238,231,248l. in 1786, when Mr. Pitt established his sinking fund of one million. By the act of 1786, as soon as the sum of one million amounted, by the aid of the dividends on the stock, which was to be purchased by it, to four millions, its accumulation was to cease, and the dividends on the stock purchased were to be available for the public service. If the 3 per cents. were at 60, when this million had accumulated to four millions, the public would have had a disposable fund of 20,000l. per annum; if at 80, of 15,000l. per annum; and no other relief was to be given to the public till the four millions had purchased the whole sum of 238 millions, the then amount of the debt. In 1792 Mr. Pitt added 200,000l. per annum to the sinking fund, and accompanied it by the following observations: “When the sum of four millions was originally fixed as the limit for the sinking fund, it was not in contemplation to issue more annually from the surplus revenue than one million; consequently, the fund would not rise to four millions, till a proportion of debt was paid off, the interest of which, together with the annuities which might fall in, in the interval, should amount to three millions. But, as on the present supposition, additional sums beyond the original million are to be annually issued from the revenue, and applied to the aid of the sinking fund, the consequence would be, that, if that fund, with these additions carried to it, were still to be limited to four millions, it would reach that amount, and cease to accumulate, before as great a portion of the debt is reduced as was originally in contemplation.” “In order to avoid this consequence, which would, as far as it went, be a relaxation in our system, I should propose, that whatever may be the additional annual sums applied to the reduction of debt, the fund should not cease to accumulate till the interest of the capital discharged, and the amount of the expired annuities should, together with the annual million only, and exclusive of any additional sums, amount to four millions.”*

  It will be recollected, that, in 1792, a provision was made for attaching a sinking fund of 1 per cent. to each loan separately, which was to be exclusively employed in the discharge of the debt contracted by that loan, but no part of these one per cents. were to be employed in the reduction of the original debt of 238,000,000l. The act of 1802 consolidated all these sinking funds, and the public were not to be exempted from the payment of the sinking fund itself, nor of the dividends on the stock to be purchased by the commissioners, till the whole debt existing in 1802 was paid off. Mr. Vansittart proposed to repeal the act of 1802, and to restore the spirit of Mr. Pitt’s act of 1792. He acknowledged, that it would be a breach of faith to the national creditor if the fair construction of that act, the act of 1792, were not adhered to.1 It was, in Mr. Vansittart’s opinion, no breach of faith to do away the conditions of the act of 1802. Supposing, however, that the act of 1802 had been really more favourable to the stockholder than that of 1792, it is not easy to comprehend by what arguments it can be proved not to be a breach of faith, to repeal the one and enact the other. Were not all the loans from 1802 to 1813 negotiated on the faith of that act? Were not all bargains made between the buyer and seller of stock made on the same understanding? Government had no more right to repeal the act of 1802, and substitute another less favourable to the stockholder, and acknowledged to be so by the minister himself, than it would have had to get rid of the sinking fund altogether. But what we are at present to inquire into is, whether Mr. Vansittart did as he professed to do? Did he restore the stockholder to all the advantages of the act of 1792? In the first place, it was declared by the new act,1 that as the sinking fund consolidated in 1802, had redeemed 238,350,143l. 18s. 1d. exceeding the amount of the debt in 1786 by 118,895l. 12s. 10½d., a sum of capital stock equal to the total capital of the public debt, existing on the 5th January 1786, viz. 238,231,248l. 5s. 2¾d. had been satisfied and discharged; “and that, in like manner, an amount of public debt equal to the capital and charge of every loan contracted since the said 5th January 1786, shall successively and in its proper order, be deemed and declared to be wholly satisfied and discharged, when and as soon as a further amount of capital stock, not less than the capital of such loan, and producing an interest equal to the dividends thereupon, shall be so redeemed or transferred.”

  It was also resolved, “that after such declaration as aforesaid, the capital stock purchased by the commissioners for the reduction of the national debt, shall from time to time be cancelled; at such times, and in such proportions, as shall be directed by any act of Parliament to be passed for such purpose, in order to make provision for the charge of any loan or loans thereafter to be contracted.”

  It was also resolved, [“]that, in order to carry into effect the provisions of the acts of the 32d and 42d of the King, for redeeming every part of the national debt within the period of 45 years from the time of its creation, it is also expedient that, in future, whenever the amount of the sum to be raised by loan, or by any other addition to the public funded debt, shall in any year exceed the sum estimated, to be applicable in the same year to the reduction of the public debt, an annual sum equal to onehalf of the interest of the excess of the said loan or other addition, beyond the sum so estimated to be applicable, shall be set apart out of the monies composing the consolidated fund of Great Britain; and shall be issued at the receipt of the Exchequer to the Governor and Company of the Bank of England, to be by them placed to the account of the commissioners for the reduction of the national debt;* and upon the remainder of such loan or other addition, the annual sum of 1 per cent. on the capital thereof, according to the provisions of the said act of the 32d year of his present Majesty.[”]

  A provision was also made, for the first time, for 1 per cent. sinking fund on the unfunded debt then existing, or which might thereafter be contracted.

  In 1802, it has been already observed, it was deemed expedient that no provision should be made for a sinking fund of 1 per cent. on a capital of 86,796,300l.; and as it was considered by the proposer of the new regulation in 1813, that he was reverting to the principle of Mr. Pitt’s act of 1792, he provided that 867,963l. should be added to the sinking fund for the 1 per cent. on the capital stock created, and which was omitted to be provided for in 1802.*

  This was the substance of Mr. Vansittart’s new plan, and which he contended was not injurious to the stockholder, as it strictly conformed to the spirit of Mr. Pitt’s act of 1792.

  1st, By Mr. Pitt’s act, no relief could be afforded to the public from the burthens of taxation, till the stock redeemed by the original sinking fund of one million amounted to such a sum as that the dividends on the capital stock redeemed should amount to three millions, making the whole sinking fund four millions; from thenceforth the four millions were to discharge debt as before, but the interest of debt so discharged was to be available for the public service, and the public was not to be relieved from the charge on the remainder of the debt of 238 millions till the four millions, at simple interest, and the further sinking fund which might arise from the falling in of terminable annuities, together with the additional sum of 200,000l. per annum, voted in 1792, with their accumulations, had redeemed the capital of 238 millions. The sinking fund arising from the 1 per cent. on each loan, was directed, by the act of 1792, to be applied to each separate loan for which it was raised. Mr. Vansittart thought himself justified and free from any breach of faith to the stockholder, in taking for the public service, not the interest of four millions, which is all that Mr. Pitt’s bill would allow him to take, but the interest on 238 millions: And on what plea? because the whole consolidated sinking funds, comprising the 1 per cent. on every loan raised since 1793, had purchased 238 millions of stock. On Mr. Pitt’s plan, he might have taken 20,000l. per annum from the sinking fund; on his own construction of that act, he took from it more than seven millions per annum.

  2dly, Mr. Vansittart acknowledged, that the stockholder, in 1802, was deprived of the advantage of 1 per cent. sinking fund on a capital of 86,796,300l., and therefore to be very just, he gives, in 1813, 1 per cent. on that capital; but should he not have added the accumulation which would have been made in the eleven years, from 1802 to 1813, on 867,963l., at compound interest, and which would have given a further addition to the sinking fund of more than 360,000l. per annum.

  3dly, On Mr. Pitt’s plan, every loan was to be redeemed by its sinking fund, under the most unfavourable circumstances, in 45 years. If the loan was raised in a 3 per cent. fund at 60, and the stock was uniformly to continue at that price, a 1 per cent. sinking fund would redeem the loan to which it was attached in 29 years; but then no relief would be given to the public from taxation till the end of 29 years; and, if there had been loans of ten millions every year for that period, when the first loan was paid off, the second would require only one year for its final liquidation; the third two years, and so on. On Mr. Vansittart’s plan, under the same circumstances, the sinking fund of each and every loan was to be applied, in the first instance, to the redemption of the first loan; and when that was redeemed and cancelled, the whole of the sinking funds were to be applied to the payment of the second; and so on successively. The first loan of ten millions would be cancelled in less than 13 years, the second in less than six years after the first, the third in a less time, and so on. At the end of the 13th year, the public would be relieved from the interest on the first loan, or, which is the same thing, from the necessity of finding fresh taxes for a new loan at the end of 13 years, for two new loans at the end of 19 years; but what would be the state of its debt at either of these periods, or at the end of 29 years? Could this advantage be obtained without a corresponding disadvantage? No; the excess of debt on Mr. Vansittart’s plan would be exactly equal to these various sums, thus prematurely released by cancelled stock, accumulated at compound interest. How could it be otherwise? Is it possible that we could obtain a present relief from the charge of debt without either directly or indirectly borrowing the fund necessary to provide that relief at compound interest? “By this means,” says Mr. Vansittart,1 “the loan first contracted would be discharged at an earlier period, and the funds charged with the payment of its interest would become applicable to the public service. Thus, in the event of a long war, a considerable resource might accrue during the course of the war itself, as every successive loan would contribute to accelerate the redemption of those previously existing; and the total amount of charge to be borne by the public, in respect of the public debt, would be reduced to a narrower compass than in the other mode, in which a greater number of loans would be co-existing. At the same time, the ultimate discharge of the whole debt would be rather accelerated than retarded.” “It is now only necessary to declare, that an amount of stock equal to the whole of the debt existing in 1786 has been redeemed; and that, in like manner, whenever an amount of stock equal to the capital and charge of any loan raised since 1792 shall be redeemed, in its proper order of succession, such loan shall be deemed and taken to be redeemed and satisfied. Every part of the system will then fall at once into its proper place; and we shall proceed with the future redemption with all the advantages which would have been derived from the original adoption of the mode of successive instead of simultaneous redemption. Instead of waiting till the purchase of the whole of the debt consolidated in 1802 shall be completed, that part of it which existed previously to 1792 will be considered as already redeemed, and the subsequent loans will follow in succession, whenever equal portions of stock shall have been purchased. It is satisfactory to observe, that, by a gradual and equable progress, we shall still have the power of effecting the complete repayment of the debt more speedily than by the present course.”Is it possible that Mr. Vansittart could so deceive himself as to believe that, by taking five millions from the sinking fund, which would not have been taken by the provisions of the act of 1802, which would not have been taken by the act of 1792, and other sums successively, in shorter times than could have been effected by the provisions of those two acts, he would be enabled to complete the repayment of the debt more speedily? Is it possible that he could believe that, by diminishing the sinking fund, that is, the amount of revenue as compared with expenditure, he would effect the payment of our debt more speedily? It is impossible to believe this. How then are his words to be accounted for? In one way he might have a meaning. It might be this,—I know we shall be more in debt in 10, 20, and 30 years, on my plan, than we should have been on that of Lord Sidmouth, or on that of Mr. Pitt; but we shall have effected a greater payment, in that time, of the stock now existing; as the sinking funds attached to future loans will be employed in paying our present debt. On Mr. Pitt’s plan, those sinking funds would be used for the payment of the new debt to be created; that is to say, of the loans to which they are respectively attached. We shall be more in debt at every subsequent period, it is true; but, as our debt may be divided into old stock and new stock, I am correct when I say, that we shall have the power of completing the repayment of the debt, meaning by the debt the stock now existing, sooner than by the present course.

  This plan of Mr. Vansittart was opposed with great ability, both by Mr. Huskisson and Mr. Tierney.1 The former gentleman said, “The very foundation of the assumption that the old debt has been paid off, is laid in the circumstance of our having incurred a new debt, of a much larger amount; and, even allowing that assumption, Mr. Vansittart would not have been able to erect his present scheme upon it, if the credit of the country had not been, for the last twenty years, materially impaired by the pressure of that new debt. On the one hand, had the sinking fund been operating at 3 per cent. during that period, he would not have touched it, even under his own construction of the act of 1792. On the other hand, had the price of the stocks been still lower than it has been, he would have taken from that sinking fund still more largely than he is now, according to his own rule, enabled to take. This, then, is the new doctrine of the sinking fund;—that, having been originally established ‘to prevent the inconvenient and dangerous accumulation of debt hereafter’ (to borrow the very words of the act), and for the support and improvement of public credit, it is in the accumulation of new debt that Mr. Vansittart finds at once the means and the pretence for invading that sinking fund; and the degree of depression of public credit is, with him, the measure of the extent to which that invasion may be carried. And this is the system of which it is gravely predicated, that it is no departure from the letter, and no violation of the spirit, of the act of 1792; and of which we are desired seriously to believe, that it is only the following up and improving upon the original measure of Mr. Pitt!—of which measure the clear and governing intention was, that every future loan should, from the moment of its creation, carry with it the seeds of its destruction; and that the course of its reimbursement should, from that moment, be placed beyond the discretion and control of parliament.”—Mr. Huskisson’s Speech, 25th March 1813.1

  This is the last alteration that has taken place in the machinery of the sinking fund. Inroads more fatal than this which we have just recorded have been made on the fund itself; but they have been made silently and indirectly, while the machinery has been left unaltered.

  It has been shown by Dr. Hamilton,2 that no fund can be efficient for the reduction of debt but such as arises from an excess of revenue above expenditure.

  Suppose a country at peace, and its expenditure, including the interest of its debt, to be forty millions, its revenue to be forty-one millions, it would possess one million of sinking fund. This million would accumulate at compound interest; for stock would be purchased with it in the market, and placed in the names of the commissioners for paying off the debt. These commissioners would be entitled to the dividends before received by private stock-holders, which would be added to the capital of the sinking fund. The fund thus increased would make additional purchases the following year; and would be entitled to a larger amount of dividends; and thus would go on accumulating, till in time the whole debt would be discharged.

  Suppose such a country to increase its expenditure one million, without adding to its taxes, and to keep up the machinery of the sinking fund; it is evident, that it would make no progress in the reduction of its debt, for, though it would accumulate a fund in the same manner as before in the hands of the commissioners, it would, by means of adding to its funded or unfunded debt, and by constantly borrowing, in the same way, the sum necessary to pay the interest on such loans, accumulate its million of debt annually, at compound interest, in the same manner as it accumulated its million annually of sinking fund.

  But suppose that it continued its operations of investing the sinking fund in the purchase of stock, and made a loan for the million which it was deficient in its expenditure, and that, in order to defray the interest and sinking fund of such loan, it imposed new taxes on the people to the amount of 60,000l., the real and efficient sinking fund would, in that case, be 60,000l. per annum and no more, for there would be 1,060,000l. and no more to invest in the purchase of stock, while one million was raised by the sale of stock, or, in other words, the revenue would exceed the expenditure by 60,000l.

  Suppose a war to take place, and the expenditure to be increased to sixty millions, while its revenue continued as before forty-one millions, still keeping on the operation of the commissioners, with respect to the investment of one million. If it were to raise war-taxes for the payment of the twenty millions additional expence, the million of sinking fund would operate to the reduction of the national debt at compound interest as it did before. If it raised twenty millions by loan in the stocks or in exchequer bills, and did not provide for the interest by new taxes, but obtained it by an addition to the loan of the following year, it would be accumulating a debt of twenty millions at compound interest, and while the war lasted, and the same expenditure continued, it would not only be accumulating a debt of twenty millions at compound interest, but a debt of twenty millions per annum, and, consequently, the real increase of its debt, after allowing for the operation of the million of sinking fund, would be at the rate of nineteen millions per annum at compound interest. But if it provided by new taxes 5 per cent. interest for this annual loan of twenty millions, it would, on one hand, simply increase the debt twenty millions per annum; on the other, it would diminish it by one million per annum, with its compound interest. If we suppose that, in addition to the 5 per cent. interest, it raised also by annual taxes 200,000l. per annum, as a sinking fund, for each loan of twenty millions, it would, the first year of the war, add 200,000l. to the sinking fund; the second year 400,000l.; the third year 600,000l., and so on, 200,000l. for every loan of twenty millions. Every year it would add, by means of the additional taxes, to its annual revenue, without increasing its expenditure. Every year too that part of this revenue which was devoted to the purpose of purchasing debt, would increase by the amount of the dividends on the stock purchased, and thus would its revenue still farther increase, till at last the revenue would overtake the expenditure, and then once again it would have an efficient sinking fund for the reduction of debt.

  It is evident, that the result of these operations would be the same, the rate of interest being supposed to be always at 5 per cent. or any other rate, if, during the excess of expenditure above revenue, the operation of the commissioners in the purchase of stock were to cease. The real increase of the national debt must depend upon the excess of expenditure above revenue, and that would be no ways altered by a different arrangement. Suppose that, instead of raising twenty millions the first year, and paying off one million, only nineteen millions had been raised by loan, and the same taxes had been raised, namely, 1,200,000l. As 5 per cent. would be paid on nineteen millions only, instead of on twenty millions, or 950,000l. for interest instead of one million, there would remain, in addition to the original million, 250,000l. towards the loan of the following year, consequently, the loan of the second year would be only for 18,750,000l.,— but as 1,200,000l. would be again raised by additional taxes, or 2,400,000l. in the whole the second year, besides the original million, there would be a surplus, after paying the interest of both loans, of 1,512,500l., and therefore the loan of the third year would be for 18,487,500l. The progress during five years is shown in the following table:

  	Loan each Year	Amount of Loans	Amount of Interest	Amount of Taxes	Surplus
  1st year	19,000,000l.	19,000,000	950,000	2,200,000	1,250,000
  2d year	18,750,000	37,750,000	1,887,500	3,400,000	1,512,500
  3d year	18,487,500	56,237,500	2,811,875	4,600,000	1,788,125
  4th year	18,211,875	74,449,375	3,722,469	5,800,000	2,077,531
  5th year	17,922,469	92,371,844	4,618,592	7,000,000	2,381,408

  If, instead of thus diminishing the loan each year, the same amount of taxes precisely had been raised, and the sinking fund had been applied in the usual manner, the amount of debt would have been exactly the same at any one of these periods. In the third column of the above table it will be seen that, in the 5th year, the debt had increased to 92,371,844l. On the supposition that 200,000l. per annum had each year been added to the sinking fund, and invested in stock by the commissioners, the amount of unredeemed debt would have been the same sum of 92,371,844l., as will be seen by the last column of the following table:

  	Loan each Year	Amount of Loans	Debt redeemed each Year	Amount Debt Redeemed	Interest on Debt Redeemed	Debt remaining Unredeemed
  1st year	20,000,000l.	20,000,000	1,000,000	1,000,000	50,000	19,000,000
  2d year	20,000,000	40,000,000	1,250,000	2,250,000	112,500	37,750,000
  3d year	20,000,000	60,000,000	1,512,500	3,762,500	188,125	56,237,500
  4th year	20,000,000	80,000,000	1,788,125	5,550,625	277,531	74,449,375
  5th year	20,000,000	100,000,000	2,077,531	7,628,156	381,408	92,371,844

  A full consideration of this subject, in all its details, has led Dr. Hamilton to the conclusion, that this first mode of raising the supplies during war, viz. by diminishing the amount of the annual loans, and stopping the purchases of the commissioners in the market, would be more economical, and that it ought therefore to be adopted. In the first place, all the expences of agency would be saved. In the second, the premium usually obtained by the contractor for the loan would be saved, on that part of it which is repurchased by the commissioners in the open market. It is true that the stocks may fall as well as rise between the time of contracting for the loan, and the time of the purchases made by the commissioners; and, therefore, in some cases, the public may gain by the present arrangement; but as these chances are equal, and a certain advantage is given to the loan contractor to induce him to advance his money, independently of all contingency of future price, the public now give this advantage on the larger sum instead of on the smaller. On an average of years this cannot fail to amount to a very considerable sum. But both these objections would be obviated, if the clause in the original sinking fund bill, authorizing the commissioners to subscribe to any loan for the public service, to the amount of the annual fund which they have to invest, were uniformly complied with. This is the mode which has, for several years, been strongly urged on ministers by Mr. Grenfell,1 and is far preferable to that which Dr. Hamilton recommends. Dr. Hamilton and Mr. Grenfell both agree, that, in time of war, when the expenditure exceeds the revenue, and when, therefore, we are annually increasing our debt, it is a useless operation to buy a comparatively small quantity of stock in the market, while we are at the same time under the necessity of making large sales; but Dr. Hamilton would not keep the sinking fund as a separate fund, Mr. Grenfell would, and would have it increased with our debt by some known and fixed rules. We agree with Mr. Grenfell. If a loan of twenty millions is to be raised annually, while there is in the hands of the commissioners ten millions which they annually receive, the obvious and simple operation should be really to raise only ten millions by loan; but there is a convenience in calling it twenty millions, and allowing the commissioners to subscribe ten millions. All the objections of Dr. Hamilton are by these means removed; there will be no expence for agency; there will be no loss on account of any difference of price at which the public sell and buy. By calling the loan twenty millions, the public will be induced more easily to bear the taxes which are necessary for the interest and sinking fund of twenty millions. Call the loan only ten millions, abolish, during the war, the very name of the sinking fund in all your public accounts, and it would be difficult to show to the people the expediency of providing 1,200,000l. per annum by additional taxation, for the interest of a loan of ten millions. The sinking fund is, therefore, useful as an engine of taxation; and, if the country could depend on ministers, that it would be faithfully devoted to the purposes for which it was established, namely, to afford at the termination of war a clear additional surplus revenue beyond expenditure, in proportion to the addition made to the debt, it would be wise and expedient to keep it as a separate fund, subject to fixed rules and regulations.

  We shall presently inquire, whether there can be any such dependence; and, therefore, whether the sinking fund is not an instrument of mischief and delusion, and really tending rather to increase our debt and burthens than to diminish them.

  It is objected both to Dr. Hamilton’s and Mr. Grenfell’s projects, that the disadvantages which they mention are trifling in degree, and are more than compensated by the steadiness which is given to the market by the daily purchases of the commissioners,—that the money which those purchases throw into the market is a resource on which bankers and others, who may suddenly want money, with certainty rely.

  Those who make this objection forget, that, if by the adoption of this plan, a daily purchaser is withdrawn from the market, so also is a daily seller. The minister gives now to one party ten millions of money to invest in stock, and to another party as much stock as ten millions costs to sell; and as the instalments on the loan are paid monthly, it may fairly be said that the supply is as regular as the demand. It cannot be doubted, too, that a loan of twenty millions is negotiated on worse terms than one of ten; it is true that no more stock will remain in the market at the end of the year, whether the one or the other sum be raised by loan; but for a time the contractor must make a large purchase, and he must wait before he can make his sale of ten millions to the commissioners. He is induced then to sell much more largely before the contract, which cannot fail to affect the market price; and it must be recollected, that it is the market price on the day of bidding for the loan which governs the terms on which the loan is negotiated. It is looked to both by the minister who sells, and the contractor who purchases. The experiment on Mr. Grenfell’s suggestion was tried for the first time in the present year, 1819; the sum required by Government was twenty-four millions, to which the commissioners subscribed twelve millions. In lieu of a loan of twenty-four millions from the contractor, there was one only of twelve millions; and as soon as this arrangement was known, previous to the contract, the stocks rose 4 or 5 per cent., and influenced the terms of the loan in that degree. The reason was, that a preparation had been made for twenty-four or thirty millions loan, and as soon as it was known that it would be for twelve millions only, a part of the stock sold was repurchased. Another advantage attending the smaller loan is that 800 per million which is paid to the bank for management of the loan is saved on the sum subscribed by the commissioners.

  Dr Hamilton, in another part of his work, observes, “If the sinking fund could be conducted without loss to the public, or even if it were attended with a moderate loss,1 it would not be wise to propose an alteration of a system which has gained the confidence of the public, and which points out a rule of taxation that has the advantage at least of being steady. If that rule be laid aside, our measures of taxation might become entirely loose.2

  “The means, and the only means, of restraining the progress of national debt are, saving of expenditure, and increase of revenue. Neither of these has a necessary connection with a sinking fund. But, if they have an eventual connection; and, if the nation, impressed with a conviction of the importance of a system established by a popular minister, has, in order to adhere to it, adopted measures, either of frugality in expenditure, or exertion in raising taxes, which it would not otherwise have done, the sinking fund ought not to be considered as inefficient, and its effects may be of great importance.”3

  It will not, we think, admit of a doubt, that if Mr. Pitt’s sinking fund, as established in 1792, had been always fairly acted upon, if, for every loan, in addition to the war-taxes, the interest, and a 1 per cent. sinking fund, had been invariably supplied by annual taxes, we should now be making rapid progress in the extinction of debt. The alteration in principle which was made in the sinking fund by the act of 1802 was, in our opinion, a judicious one; it provided, that no part of the sinking fund, neither that which arose from the original million, with its addition of 200,000l. per annum, nor that which arose from the 1 per cent. raised for the loans since 1792, should be applicable to the public service, till the whole of the debt then existing was redeemed. We should have been disposed to have extended this principle further, and to have made a provision, that no part of the sinking fund should be applicable to the public service, until the whole of the debt then existing, and subsequently to be created, should be redeemed. We do not think that there is much weight in the objection to this clause, which was made to it by Lord Henry Petty in 1807, and referred to, and more strongly urged by Mr. Vansittart1 in 1813. The noble Lord said,2 “I need hardly press upon the consideration of the committee, all the evils likely to result from allowing the sinking fund to accumulate without any limit; for the nation would be exposed, by that accumulation, to the mischief of having a large portion of capital taken at once out of the market, without any adequate means of applying it, which would, of course, be deprived of its value.

  “This evil must appear so serious to any man who contemplates its character, that I have no doubt it will be felt, however paradoxical it may seem, that the redemption of the whole national debt at once would be productive of something like national bankruptcy, for the capital would be equivalent almost to nothing, while the interest he had before derived from it would be altogether extinguished. The other evils which would arise from, and which must serve to demonstrate the mischievous consequence of a prompt discharge of the national debt, I will show presently. Different arrangements were adopted in the further provisions made on the subject of the sinking fund in 1792 and in 1802. By the first the sinking fund of 1 per cent., which was thenceforward to be provided for every new loan, was made to accumulate at compound interest until the whole of the debt created by such new loan should be extinguished. And, by the second arrangement, all the various sinking funds existing in 1802 were consolidated, and the whole were appropriated to accumulate at compound interest until the discharge of the whole of the debt also existing in 1802. But the debt, created since 1802, amounting to about one hundred millions of nominal capital, is still left subject to the acts of 1792, which provides for each separate loan a sinking fund of only 1 per cent. on the nominal capital. The plan of 1802, engrafted on the former acts of 1786 and 1792, provided for the still more speedy extinction of the debt to which it applied. But it would postpone all relief from the public burthens to a very distant period (computed, in 1802, to be from 1834 to 1844); and it would throw such large and dis-proportionate sums into the money market in the latter years of its operation, as might produce a very dangerous depreciation of the value of money. Many inconveniences might also arise from the sudden stop which would be put to the application of those sums when the whole debt should have been redeemed, and from the no less sudden change in the price of all commodities, which must follow from taking off at one and the same moment taxes to an extent probably then much exceeding thirty millions. The fate of merchants, manufacturers, mechanics, and every description of dealers, in such an event, must be contemplated by every thinking man with alarm; and this applies to my observation respecting a national bankruptcy, for, should the national debt be discharged, and such a weight of taxation taken off at once, all the goods remaining on hand would be, comparatively speaking, of no value to the holders, because, having been purchased or manufactured while such taxation prevailed, they must be undersold by all those who might manufacture the same kind of goods after such taxation had ceased. These objections were foreseen, and to a certain degree acknowledged, at the time when the act of 1802 was passed: and it was then answered, that, whenever the danger approached, it might be obviated by subsequent arrangements.” A great many of these objections appear to us to be chimerical, but, if well founded, we agree with the latter part of the extract, “whenever the danger approached, it might be obviated by subsequent arrangements.” It was not necessary to legislate in 1807, or in 1813, for a danger which could not happen till between 1834 and 1844. It was not necessary to provide against the evils which would arise from a plethora of wealth at a remote period, when our real difficulty was how to supply our immediate and pressing wants.

  What are the evils apprehended from the extravagant growth of the sinking fund, towards the latter years of its existence? Not that taxation will be increased, because the growth of the sinking fund is occasioned by dividends on stock purchased; but first, that capital will be returned too suddenly into the hands of the stockholder, without his having any means of deriving a revenue from it; and, secondly, that the remission of taxes, to the amount probably of thirty millions, will have a great effect on the prices of particular commodities, and will be very pernicious to the interest of those who may deal in or manufacture such commodities.

  It is obvious that the commissioners have no capital. They receive quarterly, or daily, certain sums arising from the taxes, which they employ in the redemption of debt. One portion of the people pay what another portion receive. If the payers employed the sums paid as capital, that is to say, in the production of raw produce, or manufactured commodities, and the receivers, when they received it, employed it in the same manner, there would be little variation in the annual produce. A part of that produce might be produced by A instead of by B; not that even this is a necessary consequence, for A, when he received the money for his debt, might lend it to B, and might receive from him a portion of the produce for interest, in which case B would continue to employ the capital as before. On the supposition, then, that the sinking fund is furnished by capital and not by revenue, no injury would result to the community, however large that fund might be,—there might or might not be a transfer of employments, but the annual produce, the real wealth of the country, would undergo no deterioration, and the actual amount of capital employed would neither be increased nor diminished. But if the payers of taxes, for the interest and sinking fund of the national debt, paid them from revenue, then they would retain the same capital as before in active employment, and as this revenue, when received by the stockholder, would be by him employed as capital, there would be, in consequence of this operation, a great increase of capital,— every year an additional portion of revenue would be turned into capital, which could be employed only in furnishing new commodities to the market. Now the doubts of those who speak of the mischievous effects of the great accumulation of the sinking fund, proceed from an opinion they entertain that a country may possess more capital than it can beneficially employ, and that there may be such a glut of commodities, that it would be impossible to dispose of them on such terms as to secure to the producers any profits on their capitals. The error of this reasoning has been made manifest by M. Say, in his able work Economie Politique,1 and afterwards by Mr. Mill, in his excellent reply to Mr. Spence, the advocate of the doctrine of the Economistes.2 They show that demand is only limited by production; whoever can produce has a right to consume, and he will exercise his privilege to the greatest extent. They do not deny that the demand for particular commodities is limited, and therefore they say, there may be a glut of such commodities, but in a great and civilized country, wants, either for objects of necessity or of luxury, are unlimited, and the employment of capital is of equal extent with our ability of supplying food and necessaries for the increasing population, which a continually augmenting capital would employ. With every increased difficulty of producing additional supplies of raw produce from the land, corn, and the other necessaries of the labourer, would rise. Hence wages would rise. A real rise of wages is necessarily followed by a real fall of profits, and, therefore, when the land of a country is brought to the highest state of cultivation,— when more labour employed upon it will not yield in return more food than what is necessary to support the labourer so employed, that country is come to the limit of its increase both of capital and population.

  The richest country in Europe is yet far distant from that degree of improvement, but if any had arrived at it, by the aid of foreign commerce, even such a country could go on for an indefinite time increasing in wealth and population, for the only obstacle to this increase would be the scarcity, and consequent high value, of food and other raw produce. Let these be supplied from abroad in exchange for manufactured goods, and it is difficult to say where the limit is at which you would cease to accumulate wealth and to derive profit from its employment. This is a question of the utmost importance in political economy. We hope that the little we have said on the subject will be sufficient to induce those who wish clearly to understand the principle, to consult the works of the able authors whom we have named, to which we acknowledge ourselves so much indebted. If these views are correct, there is then no danger that the accumulated capital which a sinking fund, under particular circumstances, might occasion, would not find employment, or that the commodities which it might be made to produce would not be beneficially sold, so as to afford an adequate profit to the producers. On this part of the subject it is only necessary to add, that there would be no necessity for stockholders to become farmers or manufacturers. There are always to be found in a great country, a sufficient number of responsible persons, with the requisite skill, ready to employ the accumulated capital of others, and to pay to them a share of the profits, and which, in all countries, is known by the name of interest for borrowed money.

  The second objection to the indefinite increase of the sinking fund remains now to be noticed. By the remission of taxes suddenly to the amount probably of thirty millions per annum, a great effect would be produced on the price of goods. “The fate of merchants, manufacturers, mechanics, and every description of dealers, in such an event, must be contemplated by every thinking man with alarm; for should the national debt be discharged, and such a weight of taxation taken off at once, all the goods remaining on hand would be, comparatively speaking, of no value to the holders, because having been purchased or manufactured while such taxation prevailed, they must be undersold by all those who might manufacture the same kind of goods after such taxation had ceased.”1 It is only then on the supposition that merchants, manufacturers, and dealers, would be affected as above described, that any evil would result from the largest remission of taxes. It would not of course be said, that, by remitting a tax of 5l. to A, 10l. to B, 100l. to C, and so on, any injury would be done to them. If they added these different sums to their respective capitals they would augment their permanent annual revenue, and would be contributing to the increase of the mass of commodities, thereby adding to the general abundance. We have already, we hope, successfully shown, that an augmentation of capital is neither injurious to the individual by whom it is saved, nor to the community at large, —its tendency is to increase the demand for labour, and consequently the population, and to add to the power and strength of the country. But they will not add these respective sums to their capitals,—they will expend them as revenue! The measure cannot be said to be either injurious to themselves or to the community on that account. They annually contributed a portion of their produce to the stockholder in payment of debt, who immediately employed it as capital; that portion of produce is now at their own disposal; they may consume it themselves if they please. A farmer who used to sell a portion of his corn for the particular purpose of furnishing this tax, may consume this corn himself,—he may get the distiller to make gin of it, or the brewer to turn it into beer, or he may exchange it for a portion of the cloth which the clothier, who is now released from the tax, as well as the farmer, is at liberty to dispose of for any commodity which he may desire. It may indeed be said, where is all this cloth, beer, gin, &c. to come from; there were no more than necessary for the general demand before this remission of taxes; if every man is now to consume more, from whence is this supply to be obtained? This is an objection of quite an opposite nature to that which was before urged. Now it is said there would be too much demand and no additional supply; before, it was contended that the supply would be so great that no demand would exist for the quantity supplied. One objection is no better founded than the other. The stockholders, by previously receiving the payment of their debt, and employing the funds they received productively, or lending them to some other persons who would so employ them, would produce the very additional commodities which the society at large would have it in their power to consume. There would be a general augmentation of revenue, and a general augmentation of enjoyment, and it must not, for a moment, be supposed that the increased consumption of one part of the people would be at the expence of another part. The good would be unmixed, and without alloy. It remains then only to consider the injury to traders from the fall in the price of goods, and the remedy against this appears to be so very simple, that it surprises us that it should ever have been urged as an objection. In laying on a new tax, the stock in hand of the article taxed is commonly ascertained, and, as a measure of justice, the dealer in such article is required to pay the imposed tax on his stock. Why may not the reverse of this be done? Why may not the tax be returned to each individual on his stock in hand, whenever it shall be thought expedient to take off the tax from the article which he manufactures, or in which he deals? It would only be necessary to continue the taxes for a very short time for this purpose. On no view of this question can we see any validity in the arguments which we have quoted,1 and which have been so particularly insisted on by Mr. Vansittart.

  There are some persons who think that a sinking fund, even when strictly applied to its object, is of no national benefit whatever. The money which is contributed, they say, would be more productively employed by the payers of the taxes, than by the Commissioners of the Sinking Fund. The latter purchase stock with it, which probably does not yield 5 per cent. the former would obtain from the employment of the same capital much more than 5 per cent. consequently the country would be enriched by the difference. There would be in the latter case a larger nett supply of the produce of our land and labour, and that is the fund from which ultimately all our expenditure must be drawn. Those who maintain this opinion, do not see that the commissioners merely receive money from one class of the community and pay it to another class, and that the real question is, Which of these two classes will employ it most productively? Forty millions per annum are raised by taxes, of which twenty millions, we will suppose, is paid for sinking fund, and twenty millions for interest of debt. After a year’s purchase is made by the commissioners, this forty millions will be divided differently, nineteen millions will be paid for interest, and twenty-one millions for sinking fund, and so from year to year, though forty millions is always paid on the whole, a less and less portion of it will be paid for interest, and a larger portion for sinking fund, till the commissioners have purchased the whole amount of stock, and then the whole forty millions will be in the hands of the commissioners. The sole question then with regard to profits is, Whether those who pay this forty millions, or those who receive it, will employ it most productively?—the commissioners, in fact, never employing it at all, their business being to transfer it to those who will employ it. Now, of this we are quite certain, that all the money received by the stockholder, in return for his stock, must be employed as capital, for if it were not so employed, he would be deprived of his revenue on which he had habitually depended. If then the taxes which are paid towards the sinking fund be derived from the revenue of the country, and not from its capital, by this operation a portion of revenue is yearly realized into capital, and consequently the whole revenue of the society is increased; but it might have been realized into capital by the payer of the tax, if there had been no sinking fund, and he had been allowed to retain the money to his own use! It might so, and if it had been so disposed of, there can be no advantage in respect to the accumulation of the wealth of the whole society by the establishment of the sinking fund, but it is not so probable that the payer of the tax would make this use of it as the receiver. The receiver when he gets paid for his stock, only substitutes one capital for another,—and he is accustomed to look to his capital for all his yearly income. The payer will have all that he paid in addition to his former revenue; if the sinking fund be discontinued he may indeed realize it into capital, but he may also use it as revenue, increasing his expenditure on wine, houses, horses, clothes, &c. The payer might too have paid it from his capital, and, therefore, the employment of one capital might be substituted for another. In this case too, no advantage arises from the sinking fund, as the national wealth would accumulate as rapidly without it as with it, but if any portion of the taxes paid expressly for the sinking fund be paid from revenue, and which, if not so paid, would have been expended as revenue, then there is a manifest advantage in the sinking fund, as it tends to increase the annual produce of our land and labour, and as we cannot but think that this would be its operation, we are clearly of opinion that a sinking fund, honestly applied, is favourable to the accumulation of wealth.

  Dr. Hamilton has followed Dr. Price in insisting much on the disadvantage of raising loans during war in a 3 per cent. stock, and not in a 5 per cent. stock. In the former, a great addition is made to the nominal capital, which is generally redeemed, during peace, at a greatly advanced price. Three per cents. which were sold at 60, will probably be repurchased at 80, and may come to be bought at 100. Whereas in 5 per cents. there would be little or no increase of nominal capital, and as all the stocks are redeemable at par, they would be paid off with very little loss. The correctness of this observation must depend on the relative prices of these two stocks. During the war in 1798, the 3 per cents. were at 50, while the 5 per cents. were at 73, and at all times the 5 per cents. bear a very low relative price to the 3 per cents. Here then is one advantage to be put against another, and it must depend upon the degree in which the prices of the 3 per cents. and 5 per cents. differ, whether it be more desirable to raise the loan in the one or in the other. We have little doubt that, during many periods of the war, there would have been a decided disadvantage in making the loan in 5 per cent. stock in preference to a 3 per cent. stock. The market in 5 per cent. stock, too, is limited, a sale cannot be forced in it without causing a considerable fall, a circumstance known to the contractors, and against which they would naturally take some security in the price which they bid for a large loan if in that stock. A premium of 2 per cent. on the market price, may appear to them sufficient to compensate them for their risk in a loan in 3 per cent. stock;—they may require one of 5 per cent. to protect them against the dangers they apprehend from taking the same loan in a 5 per cent. stock.

  II. After having duly considered the operation of a sinking fund, derived from annual taxes, we come now to the consideration of the best mode of providing for our annual expenditure, both in war and peace; and, further, to examine whether a country can have any security, that a fund raised for the purpose of paying debt will not be misapplied by ministers, and be really made the instrument for creating new debt, so as never to afford a rational hope that any progress whatever will permanently be made in the reduction of debt.

  Suppose a country to be free from debt, and a war to take place, which should involve it in an annual additional expenditure of twenty millions, there are three modes by which this expenditure may be provided; first, taxes may be raised to the amount of twenty millions per annum, from which the country would be totally freed on the return of peace; or, secondly, the money might be annually borrowed and funded; in which case, if the interest agreed upon was 5 per cent., a perpetual charge of one million per annum taxes would be incurred for the first year’s expence, from which there would be no relief during peace, or in any future war; of an additional million for the second year’s expence, and so on for every year that the war might last. At the end of twenty years, if the war lasted so long, the country would be perpetually encumbered with taxes of twenty millions per annum, and would have to repeat the same course on the recurrence of any new war. The third mode of providing for the expences of the war would be to borrow annually the twenty millions required as before, but to provide, by taxes, a fund, in addition to the interest, which, accumulating at compound interest, should finally be equal to the debt. In the case supposed, if money was raised at 5 per cent., and a sum of 200,000l. per annum, in addition to the million for interest, were provided, it would accumulate to twenty millions in 45 years; and, by consenting to raise 1,200,000l. per annum by taxes, for every loan of twenty millions, each loan would be paid off in 45 years from the time of its creation; and in 45 years from the termination of the war, if no new debt were created, the whole would be redeemed, and the whole of the taxes would be repealed.

  Of these three modes, we are decidedly of opinion that the preference should be given to the first. The burthens of the war are undoubtedly great during its continuance, but at its termination they cease altogether. When the pressure of the war is felt at once, without mitigation, we shall be less disposed wantonly to engage in an expensive contest, and if engaged in it, we shall be sooner disposed to get out of it, unless it be a contest for some great national interest. In point of economy, there is no real difference in either of the modes; for twenty millions in one payment, one million per annum for ever, or 1,200,000l. for 45 years, are precisely of the same value; but the people who pay the taxes never so estimate them, and therefore do not manage their private affairs accordingly. We are too apt to think, that the war is burdensome only in proportion to what we are at the moment called to pay for it in taxes, without reflecting on the probable duration of such taxes. It would be difficult to convince a man possessed of 20,000l., or any other sum, that a perpetual payment of 50l. per annum was equally burdensome with a single tax of 1000l. He would have some vague notion that the 50l. per annum would be paid by posterity, and would not be paid by him; but if he leaves his fortune to his son, and leaves it charged with this perpetual tax, where is the difference whether he leaves him 20,000l., with the tax, or 19,000l. without it? This argument of charging posterity with the interest of our debt, or of relieving them from a portion of such interest, is often used by otherwise well informed people, but we confess we see no weight in it. It may, indeed, be said, that the wealth of the country may increase; and as a portion of the increased wealth will have to contribute to the taxes, the proportion falling on the present amount of wealth will be less, and thus posterity will contribute to our present expenditure. That this may be so is true; but it may also be otherwise—the wealth of the country may diminish—individuals may withdraw from a country heavily taxed; and therefore the property retained in the country may pay more than the just equivalent, which would at the present time be received from it. That an annual tax of 50l. is not deemed the same in amount as 1000l. ready money, must have been observed by every body. If an individual were called upon to pay 1000l. to the income-tax, he would probably endeavour to save the whole of it from his income; he would do no more if, in lieu of this war-tax, a loan had been raised, for the interest of which he would have been called upon to pay only 50l. income-tax. The war-taxes, then, are more economical; for when they are paid, an effort is made to save to the amount of the whole expenditure of the war, leaving the national capital undiminished. In the other case, an effort is only made to save to the amount of the interest of such expenditure, and therefore the national capital is diminished in amount. The usual objection made to the payment of the larger tax is, that it could not be conveniently paid by manufacturers and landholders, for they have not large sums of money at their command. We think that great efforts would be made to save the tax out of their income, in which case they could obtain the money from this source; but suppose they could not, what should hinder them from selling a part of their property for money, or of borrowing it at interest? That there are persons disposed to lend, is evident from the facility with which government raises its loans. Withdraw this great borrower from the market, and private borrowers would be readily accommodated. By wise regulations, and good laws, the greatest facilities and security might be afforded to individuals in such transactions. In the case of a loan, A advances the money, and B pays the interest, and every thing else remains as before. In the case of war-taxes, A would still advance the money, and B pay the interest, only with this difference, he would pay it directly to A; now he pays it to government, and government pays it to A.

  These large taxes, it may be said, must fall on property, which the smaller taxes now do not exclusively do. Those who are in professions, as well as those who live from salaries and wages, and who now contribute annually to the taxes, could not make a large ready money payment; and they would, therefore, be benefited at the expence of the capitalist and landholder. We believe that they would be very little, if at all benefited by the system of war-taxes. Fees to professional men, salaries, and wages, are regulated by the prices of commodities, and by the relative situation of those who pay, and of those who receive them. A tax of the nature proposed, if it did not disturb prices, would, however, change the relation between these classes, and a new arrangement of fees, salaries, and wages, would take place, so that the usual level would be restored.

  The reward that is paid to professors, &c. is regulated, like every thing else, by demand and supply. What produces the supply of men, with certain qualifications, is not any particular sum of money, but a certain relative position in society. If you diminished, by additional taxes, the incomes of landlords and capitalists, leaving the pay of professions the same, the relative position of professions would be raised; an additional number of persons would, therefore, be enticed into those lines, and the competition would reduce the pay.

  The greatest advantage that would attend war-taxes would be, the little permanent derangement that they would cause to the industry of the country. The prices of our commodities would not be disturbed by taxation, or if they were, they would only be so during a period when every thing is disturbed by other causes, during war. At the commencement of peace, every thing would be at its natural price again, and no inducement would be afforded to us by the direct effect, and still less by the indirect effect of taxes on various commodities, to desert employments in which we have peculiar skill and facilities, and engage in others in which the same skill and facilities are wanting. In a state of freedom every man naturally engages himself in that employment for which he is best fitted, and the greatest abundance of products is the result. An injudicious tax may induce us to import what we should otherwise have produced at home, or to export what we should otherwise have received from abroad; and in both cases, we shall receive, besides the inconvenience of paying the tax, a less return for a given quantity of our labour, than what that labour would, if unfettered, have produced. Under a complicated system of taxation, it is impossible for the wisest legislature to discover all the effects, direct and indirect, of its taxes; and if it cannot do this, the industry of the country will not be exerted to the greatest advantage. By war-taxes, we should save many millions in the collection of taxes. We might get rid of at least some of the expensive establishments, and the army of officers which they employ would be dispensed with. There would be no charges for the management of debt. Loans would not be raised at the rate of 50l. or 60l. for a nominal capital of 100l., to be repaid at 70l., 80l., or possibly at 100l.; and perhaps, what is of more importance than all these together, we might get rid of those great sources of the demoralization of the people, the customs and excise. In every view of this question, we come to the same conclusion, that it would be a great improvement in our system for ever to get rid of the practice of funding. Let us meet our difficulties as they arise, and keep our estates free from permanent incumbrances, of the weight of which we are never truly sensible, till we are involved in them past remedy.

  We are now to compare the other two modes of defraying the expences of a war, one by borrowing the capital expended, and providing annual taxes permanently for the payment of the interest, the other by borrowing the capital expended, and besides providing the interest by annual taxes, raising, by the same mode, an additional revenue (and which is called the sinking fund), with a view, within a certain determinate time, to redeem the original debt, and get rid entirely of the taxes.

  Under the firm conviction that nations will at last adopt the plan of defraying their expences, ordinary and extraordinary, at the time they are incurred, we are favourable to every plan which shall soonest redeem us from debt; but then we must be convinced that the plan is effective for the object. This then is the place to examine whether we have, or can have, any security for the due application of the sinking fund to the payment of debt.

  When Mr. Pitt, in 1786, established the sinking fund, he was aware of the danger of entrusting it to ministers and parliament; and, therefore, provided that the sums applicable to the sinking fund should be paid by the Exchequer into the hands of commissioners, by quarterly payments, who should be required to invest equal sums of money in the purchase of stock, on four days in each week, or about fifty days in each quarter. The commissioners named were, the Speaker of the House of Commons, the Chancellor of the Exchequer, the Master of the Rolls, the Accountant General of the Court of Chancery, and the Governor and Deputy-Governor of the Bank. He thought, that, under such management, there could be no misapplication of the funds, and he thought correctly, for the commissioners have faithfully fulfilled the trust reposed in them. In proposing the establishment of a sinking fund to Parliament in 1786, Mr. Pitt said, “With regard to preserving the fund to be invariably applied to the diminution of the debt inalienable, it was the essence of his plan to keep that sacred, and most effectually so in time of war. He must contend, that to suffer the fund at any time, or on any pretence, to be diverted from its proper object, would be to ruin, defeat, and overturn his plan. He hoped, therefore, when the bill he should introduce should pass into a law, that House would hold itself solemnly pledged, not to listen to a proposal for its repeal on any pretence whatever.”1

  “If this million, to be so applied, is laid out with its growing interest, it will amount to a very great sum in a period that is not very long in the life of an individual, and but an hour in the existence of a great nation; and this will diminish the debt of this country so much, as to prevent the exigencies of war from raising it to the enormous height it has hitherto done. In the period of twenty-eight years, the sum of a million, annually improved, would amount to four millions per annum, but care must be taken that this fund be not broken in upon; this has hitherto been the bane of this country; for if the original sinking fund had been properly preserved, it is easy to be proved that our debts, at this moment, would not have been very burthen-some; this has hitherto been, in vain, endeavoured to be prevented by acts of Parliament; the minister has uniformly, when it suited his convenience, gotten hold of this sum, which ought to have been regarded as most sacred. What then is the way of preventing this? The plan I mean to propose is this, that this sum be vested in certain commissioners, to be by them applied quarterly to buy up stock; by this means, no sum so great will ever be ready to be seized upon on any occasion, and the fund will go on without interruption. Long and very long has this country struggled under its heavy load, without any prospect of being relieved; but it may now look forward to an object upon which the existence of this country depends; it is, therefore, proper it should be fortified as much as possible against alienation. By this manner of paying 250,000l. quarterly into the hands of commissioners, it would make it impossible to take it by stealth; and the advantage would be too well felt ever to suffer a public act for that purpose. A minister could not have the confidence to come to this House, and desire the repeal of so beneficial a law, which tended so directly to relieve the people from burthen.”1

  Mr. Pitt flattered himself most strangely, that he had found a remedy for the difficulty which “had hitherto been the bane of this country”; he thought he had discovered means for preventing “ministers, when it suited their convenience, from getting hold of this sum, which ought to be regarded as most sacred.” With the knowledge of Parliament which he had, it is surprising that he should have relied so firmly on the resistance which the House of Commons would offer to any plan of ministers for violating the sinking fund. Ministers have never desired the partial repeal of this law, without obtaining a ready compliance from Parliament.

  We have already shown,1 that, in 1807, one Chancellor of the Exchequer proposed to relieve the country from taxation, with a very slight exception, for several years together, while we were, during war, keeping up, if not increasing our expenditure, and supplying it by means of annual loans. What is this but disposing of a fund which ought to have been regarded as most sacred?

  In 1809, another Chancellor of the Exchequer raised a loan, without raising any additional taxes to pay the interest of it, but pledged a portion of the war-taxes for that purpose, thereby rendering an addition to that amount, necessary to the loan of the following and every succeeding year. Was not this disposing of the sinking fund by stealth, and accumulating debt at compound interest? Another Chancellor of the Exchequer, in 1813, proposed a partial repeal of the law, by which seven millions per annum of the sinking fund was placed at his disposal, and which he has employed in providing for the interest of new debt. This was done with the sanction of Parliament, and, as we apprehend, in direct violation of all the laws which had before been passed regarding the sinking fund. But what has become of the remainder of this fund, after deducting the seven millions taken from it by the act of 1813? It should now be sixteen millions, and at that amount it was returned in the annual finance accounts last laid before Parliament. The finance committee appointed by the House of Commons2 did not fail to see that nothing can be deemed an efficient fund for the redemption of debt in time of peace, but such as arises from an excess of revenue above expenditure, and as that excess, under the most favourable view, was not quite two millions, they considered that sum as the real efficient sinking fund, which was now applicable to the discharge of debt. If the act of 1802 had been complied with, if the intentions of Mr. Pitt had been fulfilled, we should now have had a clear excess of revenue of above twenty millions, applicable to the payment of the debt; as it is, we have two millions only, and if we ask ministers what has become of the remaining eighteen millions, they show us an expensive peace establishment, which they have no other means of defraying but by drafts on this fund, or several hundred millions of 3 per cents. on which it is employed in discharging the interest. If ministers had not had such an amount of taxes to depend on, would they have ventured, year after year, to encounter a deficiency of revenue below expenditure, for several years together, of more than twelve millions? It is true that the measures of Mr. Pitt locked it up from their immediate seizure, but they knew it was in the hands of the commissioners, and presumed as much upon it, and justly, with the knowledge they had of Parliament, as if it had been in their own. They considered the commissioners as their trustees, accumulating money for their benefit, and of which they knew that they might dispose whenever they should consider that the urgency of the case required it. They seem to have made a tacit agreement with the commissioners, that they should accumulate twelve millions per annum at compound interest, while they themselves accumulated an equal amount of debt, also at compound interest. The facts are indeed no longer denied. In the last session of Parliament, for the first time the delusion was acknowledged by ministers,1 after it had become manifest to every other person; but yet it is avowed to be their intention, to go on with this nominal sinking fund, raising a loan every year for the difference between its real and nominal amount, and letting the commissioners subscribe to it. On what principle this can be done, it would be difficult to give any rational account. Perhaps it may be said, that it would be a breach of faith to the stockholder to take away the sinking fund, but is it not equally a breach of faith if the Government itself sells to the commissioners the greatest part of the stock which they buy? The stockholder wants something substantial and real to be done for him, and not any thing deceitful and delusive. Disguise it as you will, if of fourteen millions to be invested by the commissioners in time of peace, the stock which twelve millions will purchase is sold by the Government itself, which creates it for the very purpose of obtaining these twelve millions, and only stock for two millions is purchased in the market, and no taxes for sinking fund or interest are provided for the twelve millions which Government takes; the result is precisely the same to the stockholder, and to every one concerned, as if the sinking fund was reduced to two millions. It is utterly unworthy of a great country to countenance such pitiful shifts and evasions.

  The sinking fund, then, has, instead of diminishing the debt, greatly increased it. The sinking fund has encouraged expenditure. If, during war, a country spends twenty millions per annum, in addition to its ordinary expenditure, and raises taxes only for the interest, it will, in twenty years, accumulate a debt of four hundred millions; and its taxes will increase to twenty millions per annum. If, in addition to the million per annum, taxes of 200,000l. were raised for a sinking fund, and regularly applied to the purchase of stock, the taxes, at the end of twenty years, would be twenty-four millions, and its debt only 342 millions; for fifty-eight millions will have been paid off by the sinking fund; but if, at the end of this period, new debt shall be contracted, and the sinking fund itself, with all its accumulations, amounting to 6,940,000l., be absorbed in the payment of interest on such debt, the whole amount of debt will be 538 millions, exceeding that which would have existed if there had been no sinking fund by 138 millions. If such an additional expenditure were necessary, provision should be made for it without any interference with the sinking fund. If, at the end of the war, there is not a clear surplus of revenue above expenditure of 6,940,000l., on the above supposition, there is no use whatever in persevering in a system which is so little adequate to its object. After all our experience, however, we are again toiling to raise a sinking fund; and, in the last session of Parliament, three millions of new taxes were voted, with the avowed object of raising the remnant of our sinking fund, now reduced to two millions, to five millions.1 Is it rash to prognosticate that this sinking fund will share the fate of all those which have preceded it? Probably it will accumulate for a few years, till we are engaged in some new contest, when ministers, finding it difficult to raise taxes for the interest of loans, will silently encroach on this fund, and we shall be fortunate if, in their next arrangement, we shall be able to preserve out of its wreck an amount so large as two millions.

  It is, we think, sufficiently proved, that no securities can be given by ministers that the sinking fund shall be faithfully devoted to the payment of debt, and without such securities we should be much better without such a fund. To pay off the whole, or a great portion of our debt, is, in our estimation, a most desirable object; if, at the same time, we acknowledged the evils of the funding system, and resolutely determined to carry on our future contests without having recourse to it. This cannot, or rather will not, be done by a sinking fund as at present constituted, nor by any other that we can suggest; but if, without raising any fund, the debt were paid by a tax on property, once for all, it would effect its object. Its operation might be completed in two or three years during peace; and, if we mean honestly to discharge the debt, we do not see any other mode of accomplishing it. The objections to this plan are the same as those which we have already attempted to answer1 in speaking of war-taxes. The stockholders being paid off, would have a large mass of property, for which they would be eagerly seeking employment. Manufacturers and landholders would want large sums for their payments into the Exchequer. These two parties would not fail to make an arrangement with each other, by which one party would employ their money, and the other raise it. They might do this by loan, or by sale and purchase, as they might think it most conducive to their respective interests; with this the state would have nothing to do. Thus, by one great effort, we should get rid of one of the most terrible scourges which was ever invented to afflict a nation; and our commerce would be extended without being subject to all the vexatious delays and interruptions which our present artificial system imposes upon it.

  There cannot be a greater security for the continuance of peace than the imposing on ministers the necessity of applying to the people for taxes to support a war. Suffer the sinking fund to accumulate during peace to any considerable sum, and very little provocation would induce them to enter into a new contest. They would know that, by a little management, they could make the sinking fund available to the raising of a new supply, instead of being available to the payment of the debt. The argument is now common in the mouths of ministers when they wish to lay on new taxes, for the purpose of creating a new sinking fund, in lieu of one which they have just spent, to say, “It will make foreign countries respect us; they will be afraid to insult or provoke us, when they know that we are possessed of so powerful a resource.” What do they mean by this argument, if the sinking fund be not considered by them as a war fund, on which they can draw in support of the contest? It cannot, at one and the same time, be employed in the annoyance of an enemy, and in the payment of debt. If taxes are, as they ought to be, raised for the expences of a war, what facility will a sinking fund give to the raising of them? none whatever. It is not because the possession of a sinking fund will enable them to raise new and additional taxes that ministers prize it; for they know it will have no such effect; but because they know that they will be enabled to substitute the sinking fund in lieu of taxes, and employ it, as they have always done, in war, and providing interest for fresh debt. Their argument means this, or it means nothing; for a sinking fund does not necessarily add to the wealth and prosperity of a country; and it is on that wealth and prosperity that it must depend whether new burthens can be borne by the people. What did Mr. Vansittart mean in 1813, when he said1 that “the advantage which his new plan of finance would hereafter give, in furnishing 100 millions in time of peace, as a fund against the return of hostilities, was one of great moment. This would place an instrument of force in the hands of parliament which might lead to the most important results.” “It might be objected by some, that, keeping in reserve a large fund to meet the expences of a new war, might be likely to make the government of this country arrogant and ambitious; and therefore have a tendency unnecessarily to plunge us in new contests;”—not a very unreasonable objection, we should think! How does Mr. Vansittart answer it? “On this subject he would say from long experience and observation, that it would be better for our neighbours to depend on the moderation of this country, than for this country to depend on them1 . He should not think the plan objectionable on this account. If the sums treasured up were misapplied by the arrogant or ambitious conduct of our government, the blame must fall on the heads of those who misused it, not on those who put it into their hands for purposes of defence. They did their duty in furnishing the means of preserving the greatness and glory of the country, though those means might be used for the purposes of ambition, rapine, and desolation.” These are very natural observations from the mouth of a minister; but we are of opinion that such a treasure would be more safe in the custody of the people, and that Parliament have something more to do than to furnish ministers with the means of preserving the greatness and glory of the country. It is their duty to take every security that the resources of the country are not misapplied “by the arrogant and ambitious conduct of our government,” or “used for the purposes of ambition, rapine, and desolation.”

  If we had no other reason for our opinion, this speech would convince us that, in the present constitution of Parliament, the superintending authority, the sinking fund is pernicious, and that it cannot be too soon abolished.

  On the extraordinary assumption that there was any thing in Mr. Vansittart’s plan that would, more effectually than the old plan, allow 100 millions hereafter to be appropriated to the public service, Dr. Hamilton has the following observations:

  “We are altogether at a loss to form a distinct conception of the valuable treasure here held forth. So soon as any stock is purchased by the commissioners, and stands invested in their name, a like amount of the public debt is in fact discharged. Whether a Parliamentary declaration to the effect be made or not, is only a matter of form. If the money remain invested in the name of the commissioners, no doubt it may be transferred again to purchasers in the stock exchange, when war broke out anew; and money may be raised for the public in this manner. It is an application to the public to invest their capital in the purchase of this dormant stock.”1 “It is true, that, if the taxes imposed during war, for the purpose of a sinking fund, be continued after peace is restored, till a large sum (suppose 100,000,000l.) be vested in the hands of the Commissioners, the public, upon the renewal of the war, may spend to that amount without imposing fresh taxes[”]2 , [“]an advantage,” observes Mr. Huskisson, “not only not exclusively belonging to this plan, but unavoidable under any plan of a sinking fund in time of peace.”3 Mr. Vansittart ought to have said, “if our sinking fund should accumulate, in time of peace, to so large a sum that I can take five millions per annum from it; I can spend 100,000,000l. in a new war without coming to you for fresh taxes; the disadvantages of my plan are, that by now taking 7,000,000l. per annum from it, and making a provision for speedily, and at regular intervals, appropriating more of this fund to present objects, the sinking fund will be so much diminished, that I cannot so soon, by a great many years, avail myself of the five millions for the purpose which I have stated.”

  (e.e.e.)

  

  On Protection to Agriculture 1822 edition.

  

  On Protection to Agriculture 1822 4th edition.

  [1 ]The quotations are from the ‘Third Edition, Enlarged’, Edinburgh, Oliphant, 1818, p. 135 ff.

  [1 ]Misprinted ‘unfavourable’; Hamilton says ‘conformable’.

  [* ]Mr. Huskisson’s Speech on the State of the Finance and Sinking Fund, 25th March 1813.1

  [1 ]p. 216.

  [1 ]Hamilton actually says ‘The arrangement of the loans’.

  [2 ]p. 214.

  [* ]Mr. Pitt’s Speech, 17th February 1792.2

  [1 ]See Outlines of a Plan of Finance: proposed to be submitted to Parliament, 1813, p. 7; and Vansittart’s speech, 3 March 1813 (Hansard, XXIV, 1086).

  [1 ]An Act relating to the Redemption of the National Debt (53 Geo. III. c. 35). The quotations that follow are from the resolutions moved by Vansittart, 3 March 1813, and adopted by the House of Commons, 26 March 1813 (Hansard, XXIV, 1091–3).

  [* ]The effect of this clause was to give a sinking fund of 1½ instead of 1 per cent. on such excess of loan above the sinking fund, if the loan were raised in a 3 per cent. stock, and of 2½ per cent. if raised in a 5 per cent. stock.

  [* ]

  Mr. Vansittart’s plan has added to the sinking fund 1 per cent. on a capital of 86,796,300l.	867,963l.
  On fifty-six millions of Exchequer bills outstanding, 5th January 1818, 1 per cent	560,000
  By attaching a sinking fund of one-half the interest, instead of 1 per cent. on a part of the capital createdby loans, he has added to the sinking fund	793,348
  Total added	2,221,311 l.
  From stock, cancelled and available for public service	7,632,969
  Total deduction from sinking fund, on 5th January 1819	5,411,658 l.

  On the 3d of February 1819, the Commissioners certified, that there had been transferred to them 378,519,969l. 5s. 3¾d. capital stock, the interest on which was 11,448,564l. 10s. 6¼d., and that the debt created prior to, and by the 37th Geo. III amounted to 348,684,197l. 1s. 5¾d., with a yearly interest of 11,446,736l. 3s. 4¾d.; and, consequently, the excess redeemed was 29,835,772l. 3s. 9¼d., with a yearly interest of 1828l. 7s. 1¼d. Of the above sum of 11,448,564l., 7,632,969l. only has been cancelled.

  [1 ]Speech on the New Plan of Finance, 3 March 1813 (Hansard, XXIV, 1088–9). The italics are Ricardo’s.

  [1 ]See Tierney’s speech on Vansittart’s New Plan, 3 March 1813 (Hansard, XXIV, 1095–8).

  [1 ]See Substance of the Speech of W. Huskisson..., pp. 20–2.

  [2 ]pp. 44–58.

  [1 ]See Grenfell’s motions respecting the Sinking Fund in 1814 (Hansard, XXVII, 578–82 and 651) and cp. below, V, 4.

  [1 ]The clause beginning ‘or even’ is not in Hamilton.

  [2 ]Hamilton, p. 206.

  [3 ]ib. p. 205.

  [1 ]Speech on the New Plan of Finance, 3 March 1813 (Hansard, XXIV, 1083).

  [2 ]Speech on a Plan of Finance, 29 Jan. 1807 (Hansard, VIII, 585–7).

  [1 ]Traité d’Économie politique, Paris, Deterville, ist ed., 1803; see Bk. I, ch. xxii, ‘Des Débouchés’.

  [2 ]Commerce Defended. An Answer to the Arguments by which Mr. Spence, Mr. Cobbett, and Others, have Attempted to Prove that Commerce is not a Source of National Wealth, by James Mill, London, Baldwin, 1808.

  [1 ]Lord Henry Petty, quoted above, p. 176.

  [1 ]Above, pp. 175–7.

  [1 ]In the debate on his own Plan for the Reduction of the National Debt, 29 March 1786 (Hansard’s Parliamentary History, XXV, 1321–2).

  [1 ]ib. 1309. The italics are Ricardo’s.

  [1 ]Above, pp. 154–5.

  [2 ]In their ‘First Report’, 1819 (reprinted in Hansard, Appendix to vol. XL).

  [1 ]The acknowledgement was implied in the proposal of the Budget of 1819 to borrow £12,000,000 from the Sinking Fund for the service of the year; see below, V, 20.

  [1 ]See below, V, 20.

  [1 ]Above, pp. 186–90.

  [1 ]In the debate on the state of the finances of Great Britain, 25 March 1813 (Hansard, XXV, 333–4).

  [1 ]‘theirs’ in Hansard.

  [1 ]p. 233.

  [2 ]This part of the quotation is from Hamilton, pp. 234–5, not from Huskisson.

  [3 ]Substance of the Speech of W. Huskisson...25 March 1813, p. 40.

  [* ]Mr. Huskisson’s Speech on the State of the Finance and Sinking Fund, 25th March 1813.1

  [* ]Mr. Pitt’s Speech, 17th February 1792.2

  [1]See Substance of the Speech of W. Huskisson..., London, Murray, 1813, pp. 29–30.

  [2]On the State of the Public Revenue and Expenditure, in The Speeches of William Pitt, London, 1806, vol. ii, pp. 36–7.

• Back to Top

  12: On Protection to Agriculture [1822/2004]

  David Ricardo, The Works and Correspondence of David Ricardo, ed. Piero Sraffa with the Collaboration of M.H. Dobb (Indianapolis: Liberty Fund, 2005). Vol. 4 Pamphlets and Papers 1815-1823. Chapter: ON PROTECTION TO AGRICULTURE 1822

  Accessed from oll.libertyfund.org/title/205/38608 on 2010-02-03

  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.

  ---

  NOTE ON ‘PROTECTION TO AGRICULTURE’

  A Select Committee had been appointed in the previous year (on 7 March 1821) to consider the depressed state of agriculture:T. Gooch was the Chairman and Ricardo was one of its members. They took evidence from 42 witnesses and drew up their Report on 18 June 1821, too late in the Session for consideration by Parliament.

  On 19 April Ricardo wrote to M^cCulloch that he had sent him an early copy of the pamphlet which he had just published, and M^cCulloch reviewed it in the Scotsman for 27 April.

  Opening the debate on the Report on 29 April Lord Londonderry declared that in repeating his opinion that the necessary relief for agriculture could not come from the remission of taxation, he was

  The text of the present edition follows that of the fourth edition, while the variants of the earlier editions are given in footnotes.

  INTRODUCTION

  It cannot, I think, be denied, that, within these few years, great progress has been made in diffusing correct opinions on the impolicy of imposing restrictions on the importation of foreign corn; but, unhappily, much prejudice yet exists on this subject, and it is to be feared that the generally-prevailing errors in the minds of those who are suffering from the distressed state of our agriculture, may lead to measures of increased restriction, rather than to the only effectual remedy for those distresses, the gradual approach to a system of free trade. It is to the present corn-law that much of the distress is to be attributed, and I hope to make it appear, that the occupation of a farmer will be exposed to continual hazard, and will be placed under peculiar disadvantages, as compared with all other occupations, while any system of restriction on the importation of foreign corn is continued, which shall have the effect of keeping the price of corn in this country habitually and considerably above the prices of other countries.

  Before I proceed, however, to this, which is the main object that I have in view, I wish to notice some of the prevailing opinions which are daily advanced on the subject of the causes of the present distress; on the doctrine of remunerating price; on taxation; on currency, &c.: after disposing of these, we shall be better able to examine the important question of what ought to be the permanent regulations of this country, respecting the trade in corn, in order to afford the greatest security to the people, for a cheap and steady price, with an abundant supply of that essential article.

  section i

  On Remunerating Price

  The words Remunerative Price are meant to denote the price at which corn can be raised, paying all charges, including rent, and leaving to the grower a fair profit on his capital. It follows from this definition, that in proportion as a country is driven to the cultivation of poorer lands for the support of an increasing population, the price of corn, to be remunerative, must rise; for even if no rent is paid for such poorer land—as the charges on its cultivation must, for the same quantity of produce, be greater than on any other land previously cultivated,1 those charges can only be returned to the grower by an increase of price. “I know districts of the country* ,” says Mr. Iveson, “taking the very best qualities in them, that will produce from four to five quarters by the acre. I know there are farms that have averaged in the wheat crop, four quarters to the acre, or 32 bushels.” “In what part of the kingdom? In Wiltshire.” “What would you estimate the second quality of land at? I think the middling, or second, what I should call the middling quality of lands under good cultivation, may be taken at two quarters and a half.” “And the inferior lands? From 12 to 15 bushels an acre.” Mr. Harvey was asked, “What is the lowest rent you have ever known to be paid for the worst land on which corn is raised? Eighteen-pence an acre.” Mr. Harvey further stated, that on2 an average of the last ten years he had obtained 30 bushels of wheat per acre from his land.1 Mr. Wakefield’s evidence was to the same effect as Mr. Iveson’s; but the difference according to him between the produce of wheat per acre on the best and worst land in cultivation was as much as 32 bushels; for he said “that on the sea coast of Norfolk, Suffolk, Essex, and Kent, the crop is thought a bad one, if it be not 40 bushels per acre;” and he added, “I do not believe, that the very poor lands produce above eight bushels per acre.”2

  Suppose now, that the population of England had only been one half its present amount, and that it had not been necessary to take any other quality of land into cultivation than that which yielded 32 bushels of wheat per acre; what would have been the remunerative price? Can any one doubt of its being so low, that, if the prices on the Continent had been at the same average at which they have been for the last five or ten years, we should have been an exporting instead of an importing country? It is true, that this land now yields 32 bushels, and would have yielded no more on the supposition that I have made; but is it not true, that the value of the 32 bushels now raised, is regulated by the cost of producing the 12 or 15 bushels on the inferior lands of which Mr. Iveson speaks? If the cost of raising 15 bushels of wheat is as great now, as the cost was of raising 30 bushels formerly, the price must be doubled to be remunerative, for the degree in which the price must rise to compensate the producer for the charges which he has to pay, does not depend on the quantity produced, nor on the quantity consumed, but on the cost of its production. The difference in the value of the quantity raised on the good land, and on the inferior land, will always constitute rent; so that the profits of the occupiers of the good and bad land will be the same, but the rent of the best land will exceed the rent of the worst by the difference in the quantity of produce, which with the same expense, it can be made to yield. It is now universally admitted, that rent is the effect of the rise in the price of corn, and not the cause; it is also admitted, that the only permanent cause of rise in the value of corn, is an increased charge on its production, caused by the necessity of cultivating poorer lands; on which, by the expenditure of the same quantity of labour, the same quantity of produce cannot be obtained.

  Is it not true that the rent on the better land is regulated by the lesser quantity of 15 bushels, with which we are now obliged to be contented on our poorer lands? The rent which is now a charge on cultivating the land which yields the 32 bushels, and which is equal to the value of 17 bushels, the difference between 15 and 32 bushels, could not have existed, if no land was cultivated but such as yielded 32 bushels. If, then, with the charge of rent, the cost of raising 15 bushels on the rich land—and without the payment of rent, the cost of raising the same quantity on the poor land, is now1 as great as the cost of raising 30 bushels was formerly on the rich land, when no rent was paid, the price must be doubled.

  It appears then that, in the progress of society, when no importation takes place, we are obliged constantly to have recourse to worse soils to feed an augmenting population, and with every step of our progress the price of corn must rise, and with such rise, the rent of the better land which had been previously cultivated, will necessarily be increased. A higher price becomes necessary to compensate for the smaller quantity which is obtained; but this higher price must never be considered as a good,—it would not have existed if the same return had been obtained with less labour,—it would not have existed if, by the application of labour to manufactures, we had indirectly obtained the corn by the exportation of those manufactures in exchange for corn. A high price, if the effect of a high cost, is an evil, and not a good; the price is high, because a great deal of labour is bestowed in obtaining the corn. If only a little labour was bestowed upon it, more of the labour of the country, which constitutes its only real source of wealth, would have been at its disposal to procure other enjoyments which are desirable.

  section ii

  On the Influence of a Rise of Wages on the price of Corn

  Much of what has been said in the foregoing section, would probably be allowed by some of those who are the advocates for a restricted trade in corn; they would however add, that though it could be shewn that no protecting duties on the importation of corn could be justifiable, merely on account of the increased expenditure of labour necessary to obtain a given quantity in this country, yet such duties were necessary to protect the farmer against the effects of high wages in this country, caused by the taxation which falls on the labouring classes, and which must be repaid to them by their employers, by means of high wages. This argument proceeds on the assumption, that high wages tend to raise the price of the commodities on which labour is bestowed. If the farmer, they say, could, before taxation, and the high wages which are the effect of it, compete with the foreign grower of corn, he can no longer do so now he is exposed to a burthen from which his competitor is free.

  This whole argument is fallacious,—the farmer is placed under no comparative disadvantage, in consequence of a rise of wages. If, in consequence of taxes paid by the labouring class, wages should1 rise, which they, in all probability, would do, they would equally affect all classes of producers. If it be deemed necessary, that corn should rise in order to remunerate the growers, it is also necessary that cloth, hats, shoes, and every other commodity should rise, in order to remunerate the producers of those articles. Either then corn ought not to rise, or all other commodities should rise along with it.

  If neither corn, nor any other commodity, rise, they will of course be all of the same relative value as before; and if they do all rise, the same will be true. All must require protecting duties, or none. To impose protecting duties on all commodities would be absurd, because nothing would be gained by it; it would in no way alter the relative value of commodities; and it is only by altering the relative value of commodities that any particular trade is protected; not merely by an alteration of price. If England gave a yard of superfine cloth to Germany for a quarter of wheat, she would neither be more nor less disposed to carry on this trade, if both cloth and corn were raised 20 per cent. in price. All foreign trade finally resolves itself into an interchange of commodities; money is but the measure by which the respective quantities are1 ascertained. No commodity can be imported unless another commodity is exported; and the exported commodity must be equally raised in price by the rise of wages. It is essential that a drawback should be allowed on the exported article, if the one imported be protected by a duty. But it comes to the same thing, if no drawback be allowed on the one, nor protection granted to the other, because, in either case, precisely the same quantity of the foreign commodity will be obtained for a given quantity of the home-made commodity.

  If a quarter of corn be raised from 60s. to 75s., or 25 per cent. by a rise of wages, and a certain quantity of hats or cloth be raised in the same proportion by the same cause, the importer of corn into England would lose just as much by the commodity which he exports, as he would gain by the corn which he imports. If trade were left free, corn would not rise from 60 to 75, notwithstanding the rise of wages; nor would cloth, or hats, or shoes rise from this cause. But, if I should allow that they would rise, it would make no difference to my argument; we should then export money in exchange for corn, because no commodity could be so profitably employed in paying for it; for, by the supposition, every other commodity is raised in price. The exportation of money would gradually lessen the quantity, and raise its value in this country, while the importation of it into other countries would have a contrary effect in them; it would increase the quantity, and sink its value, and thus the price of corn, of cloth, of hats, and of all other things in England, would bear the same relation to the prices of the same commodities in other countries, as they bore before wages were raised. In all cases, the rise of wages, when general, diminishes profits, and does not raise the prices of commodities. If the prices of commodities rose, no producer would be benefited; for of what consequence could it be to him to sell his commodity at an advance of 25 per cent., if he, in his turn, were obliged to give 25 per cent. more for every commodity which he purchased? He would be precisely in the same condition, whether he sold his corn for 25 per cent. advance, and gave an additional 25 per cent. in the price of his hats, shoes, clothes, &c. &c., as if he sold his corn at the usual price, and bought all the commodities which he consumed at the prices which he had before given for them. No one class of producers, then, is entitled to protection on account of a rise of wages, because a rise of wages equally affects all producers; it does not raise the prices of commodities because it diminishes profits; and, if it did raise the price of commodities, it would raise them all in the same proportion, and would not therefore alter their exchangeable value. It is only when commodities are altered in relative value, by the interference of Government, that any tax, which shall act as a protection against the importation of a foreign commodity, can be justifiable.

  It is by many supposed, that a rise in the price of corn will raise the price of all other things; this opinion is founded on the erroneous view which they take of the effect of a general rise of wages. Corn rises because it is more difficult to produce, and its cost is raised; it would be no rise at all, if all other things rose with it. It is a real rise to the hatter and clothier, if they are obliged one to give more hats, the other more cloth for their corn; it would be no rise at all to them, and it would be impossible to shew who paid for the increased cost, if their commodities also rose, and exchanged for the same quantity of corn.

  It may be laid down as a principle, that any cause which operates in a country to affect equally all commodities, does not alter their relative value, and can give no advantage to foreign competitors, but that any cause which operates partially on one, does alter its value1 to others, if not countervailed by an adequate duty; it will give advantage to the foreign competitor, and tend to deprive us of a beneficial branch of trade.

  section iii

  On the Effects of Taxes imposed on a particular Commodity

  For the same reasons that protecting duties are not justifiable on account of the rise of wages generally, from whatever cause it may proceed, it is evident that they are not to be defended when taxation is general, and equally affects all classes of producers. An income tax is of this description; it affects equally all who employ capital, and it has never yet been suggested by those most favourable to protecting duties that any would be necessary on account of an income tax. But a tax affecting equally all productions is precisely of the same description as an income tax, because it leaves them, after the tax, of the same relative value to each other as before it was imposed. The rise of wages, a tax on income, or a proportional tax on all commodities, all operate in the same way; they do not alter the relative value of goods, and therefore they do not subject us to any disadvantage in our commerce with foreign countries. We suffer indeed the inconvenience of paying the tax, but from that burthen we have no means of freeing ourselves.

  A tax, however, which falls exclusively on the producers of a particular commodity tends to raise the price of that commodity, and if it did not so raise it the producer would be under a disadvantage as compared with all other producers; he would no longer gain the general and ordinary profits by his trade. By rising in price, the value of this commodity is altered as compared with other commodities. If no protecting duty is imposed on the importation of a similar commodity from other countries, injustice is done to the producer at home, and not only to the producer but to the country to which he belongs. It is for the interest of the public that he should not be driven from a trade which, under a system of free competition, he would have chosen, and to which he would adhere if every other commodity were taxed equally with that which he produces. A tax affecting him exclusively is, in fact, a bounty to that amount on the importation of the same commodity from abroad; and to restore competition to its just level, it would be necessary not only to subject the imported commodity to an equal tax, but to allow a drawback of equal amount,1 on the exportation of the home-made commodity.

  The growers of corn are subject to some of these peculiar taxes, such as tithes, a portion of the poors’ rate, and, perhaps, one or two other taxes, all of which tend to raise the price of corn, and other raw produce, equal to these peculiar burthens. In the degree then in which these taxes raise the price of corn, a duty should be imposed on its importation. If from this cause it be raised ten shillings per quarter, a duty of ten shillings should be imposed on the importation of foreign corn, and a drawback of the same amount should be allowed on the exportation of corn. By means of this duty and this drawback, the trade would be placed on the same footing as if it had never been taxed, and we should be quite sure that capital would neither be injuriously for the interests of the country, attracted towards, nor repelled from it.

  The greatest benefit results to a country when its Government forbears to give encouragement, or oppose obstacles, to1 any disposition of capital which the proprietor may think most advantageous to him. By imposing tithes, &c. on the farmer exclusively, no obstacle would be opposed to him, if there were no foreign competition, because he would be able to raise the price of his produce, and if he could not do so he would quit a trade which no longer afforded him the usual and ordinary profits of all other trades. But if importation was allowed, an undue encouragement would be given to the importation of foreign corn, unless the foreign commodity were subject to a2 duty, equal to tithes or any other exclusive tax3 imposed on the home-grower.

  But the home-grower would still have to complain, if he was refused a drawback on exportation, because he might then say, “Before your duty, and before the price of my produce was raised in consequence of it, I could compete with the foreign grower in foreign markets; by making the remunerating price of my corn higher, you have deprived me of that advantage, therefore give me a drawback equal to the duty, and you, in every respect, restore me to the position,1 as it regards both my own countrymen, as producers of other commodities, and foreign growers of raw produce, in which I was before placed.” On every principle of justice, and consistently with the best interests of the country his demand should be acceded to.

  section iv

  On the effect of Abundant Crops on the Price of Corn

  In a former section I2 have endeavoured to shew, that the price of corn, to be remunerative, must pay all the charges of its production, including in those charges the ordinary profits of the stock employed. It is, in fact, by these conditions being fulfilled, that the supply, on an average of years, is regulated. If the price obtained be less than remunerative, profits will be depressed, or will entirely disappear. If it be more than remunerative, profits will be high. In the first case, capital will be withdrawn from the land, and the supply will gradually conform to the demand. In the second case, capital will be attracted to the land, and the supply will be increased. But, notwithstanding this tendency of the supply of corn to conform itself to the demand, at prices which shall be remunerative, it is impossible to calculate accurately on the effects of the seasons. Sometimes, for a few years successively, crops will be abundant; at other times they will, for an equal period, be scanty and insufficient. When the quantity of corn at market, from a succession of good crops, is abundant, it falls in price, not in the same proportion as the quantity exceeds the ordinary demand, but very considerably more. The demand for corn, with a given population, must necessarily be limited; and, although it may be, and undoubtedly is, true, that when it is abundant and cheap, the quantity consumed will be increased, yet it is equally certain, that its aggregate value will be diminished. Suppose 14 millions of quarters of wheat to be the ordinary demand of England, and that, from a very abundant season, 21 millions is produced. If the remunerative price were 3l. per quarter, and the value of the 14 millions of quarters 42,000,000l., there cannot be the least doubt, that the 21 millions of quarters would be of very considerably less value than 42,000,000l. No principle can be better established, than that a small excess of quantity operates very powerfully on price. This is true of all commodities; but of none can it be so certainly asserted as of corn, which forms the principal article of the food of the people. The principle, I believe, has never been denied by those who have turned their attention to this subject. Some, indeed, have attempted to estimate the fall of price which would take place, under the supposition of the surplus bearing different proportions to the average quantity. Such calculations, however, must be very deceptious, as no general rule can be laid down for the variations of price in proportion to quantity. It would be different in different countries; it must essentially depend on the wealth or poverty of the country, and on its means of holding over the superfluous quantity to a future season. It must depend, too, on the opinions formed of the probability of the future supply being adequate or otherwise to the future demand. This, however, is, I think, certain, that the aggregate value of an abundant crop will always be considerably less than the aggregate value of an average one; and that the aggregate value of a very limited crop will be considerably greater than that of an average crop. If 100,000 loaves were sold every day in London, and the supply should all at once be reduced to 50,000 per day, can any one doubt but that the price of each loaf would be considerably more than doubled? The rich would continue to consume precisely the same number of loaves, although the price was tripled or quadrupled. If, on the other hand, 200,000 loaves, instead of 100,000, were daily exposed for sale, could they be disposed of without a fall of price, far exceeding the proportion of the excess of quantity? Why is water without value, but because of its abundance? If corn were equally plenty, it would have no greater value, whatever quantity of labour might have been bestowed on its production.

  In proof of the correctness of this view, I may refer to the prices of wheat in this country in different seasons of plenty, when it will be seen that, notwithstanding we were in a degree relieved by exportation, yet, from the abundance of crops, corn has been known to fall 50 per cent. in three years. Now to what can this be imputed but to excess of quantity? The document which follows is copied from Mr. Tooke’s evidence before the committee of 1821.

  		s.	d.		Quarters.
  In 1728	the price of wheat was	48	5½	with an excess of import of	70,757
  1732	” ”	23	8½	with an excess of export of	202,058
  1740	” ”	45	0½	” ”	46,822
  1743	” ”	22	1	” ”	371,429
  1750	” ”	28	10¾	” ”	947,323
  1757	” ”	53	4	excess of import	130,017
  1761	” ”	26	10¾	excess of export	441,956
  				Page 229 Agricultural Report.

  Because it has been said, that abundance may be prejudicial to the interests of the producers, it has been objected that the new doctrine on this subject is, that the bounty of Providence may become a curse to a country; but this is essentially changing the proposition. No one has said that abundance is injurious to a country, but that it frequently is so to the producers of the abundant commodity. If what they raised was all destined for their own consumption, abundance never could be hurtful to them; but if, in consequence of the plenty of corn, the quantity with which they go to market to furnish themselves with other things is very much reduced in value, they are deprived of the means of obtaining their usual enjoyments; they have, in fact, an abundance of a commodity of little exchangeable value. If we lived in one of Mr. Owen’s parallelograms, and enjoyed all our productions in common, then no one could suffer in consequence of abundance, but as long as society is constituted as it now is, abundance will often be injurious to producers, and scarcity beneficial to them.

  section v

  On the effect produced on the Price of Corn by Mr. Peel’s Bill for restoring the ancient standard

  Much difference of opinion prevails on the effect produced on the price of corn by Mr. Peel’s bill for restoring the ancient standard. On this subject there is a great want of candour in one of the disputing parties; and I believe it will be found, that many of those who contended during the war, that our money was not depreciated at all, now endeavour to shew that the depreciation was then enormous, and that all the distresses which we are now suffering, have arisen from restoring our currency from a depreciated state to par.

  It is also forgotten, that from 1797 to 1819 we had no standard whatever, by which to regulate the quantity or value of our money. Its quantity and its value depended entirely on the Bank of England, the directors of which establishment, however desirous they might have been to act with fairness and justice to the public, avowed that they were guided in their issues by principles which, it is no longer disputed, exposed the country to the greatest embarrassment. Accordingly we find that the currency varied in value considerably during the period of 22 years, when there was no other rule for regulating its quantity and value but the will of the Bank.

  In 1813 and 1814, the depreciation of our currency was probably at its highest point, gold being then 5l. 10s. and 5l. 8s. per ounce; but in 1819, the value of paper was only 5 per cent. below its ancient standard, gold being then 4l. 2s. or 4l. 3s. per ounce. It was in 1819 that Mr. Peel’s bill passed into a law. At the time of passing that bill, Parliament had to deal with the question as it then presented itself. It was thought expedient that an end should be put to a state of things which allowed a company of merchants to regulate the value of money as they might think proper; and the only point which could then come under consideration was, whether the standard should be fixed at 4l. 2s., which was the price of gold not only at the time when Parliament was legislating, but its price for nearly the whole of the four preceding years; or the ancient standard of 3l. 17s. 10½d. should be restored. Between these two prices Parliament was constrained to determine, and I think, in choosing to go back to the ancient standard, it pursued a wise course. But when it is now said that money has been forcibly raised in value—25 per cent., according to some; 50, and even 60 per cent., according to others, they do not refer to 1819, the period at which that bill passed, but to the period of the greatest depression; and they charge the whole increase in the value of the currency to Mr. Peel’s bill. Now, it is to the system which allowed of such variations in the value of money that Mr. Peel’s bill put an end. If, indeed, in 1819, or immediately preceding 1819, gold had been at 5l. 10s. an ounce, no measure could have been more inexpedient than to make so violent a change in all subsisting engagements, as would have been made by restoring the ancient standard; but the price of gold, as I have already said, was then, and had been for four years, about 4l. 2s., never above, and frequently rather under, that price; and no measure could have been so monstrous as that which some reproach the House of Commons for not having adopted, namely, of fixing the standard at 5l. 10s.; that is, in other words, after the currency had regained its value within 5 per cent. of gold, under the operation of the bad system, again to have degraded it to 30 per cent. below the value of gold.

  It will be remembered, that a plan was by me submitted to the country, for the restoration of a fixed standard, which would have rendered the employment of any greater quantity of gold than the Bank then possessed wholly unnecessary.

  That plan was to make the Bank liable to the payment of a certain large and fixed amount of their notes in gold bullion, at the Mint price of 3l. 17s. 10½d. an ounce, instead of payment in gold coin. If that plan had been adopted, not a particle of gold would have been used in the circulation,—all our money must have consisted of paper, excepting the silver coin necessary for payments under the value of a pound. In that case it is demonstrable, that the value of money could only have been raised 5 per cent, by reverting to the fixed ancient standard, for that was the whole difference between the value of gold and paper. There was nothing in the plan which could cause a rise in the value of gold, for no additional quantity of gold would have been required, and therefore 5 per cent. would have been the full extent of the rise in the value of money* . Mr. Peel’s bill adopted this plan for four years, after which payments in coin were to be established. If for the time specified by the bill, the Bank Directors had managed their affairs with the skill which the public interest required, they would have been satisfied with so regulating their issues, after Mr. Peel’s bill passed, that the exchange should continue at par, and consequently no importation of gold could have taken place; but the Bank, who always expressed a decided aversion to1 the plan of bullion payments, immediately commenced preparations for specie payments. Their issues were so regulated, that the exchange became extremely favourable to this country, gold flowed into it in a continued stream, and all that came the Bank eagerly purchased at 3l. 17s. 10½d. per ounce. Such a demand for gold could not fail to elevate its value, compared with the value of all commodities. Not only, then, had we to elevate the value of our currency 5 per cent., the amount of the difference between the value of paper and of gold before these operations commenced, but we had still further to elevate it to the new value to which gold itself was raised, by the injudicious purchases which the Bank made of that metal. It cannot, I think, be doubted, that if bullion payments had been fairly tried for three out of the four years, between 1819 and 1823, and had been found fully to answer all the objects of a currency regulated by gold at a fixed value; the same system would have been continued, and we should have escaped the further pressure which the country has undoubtedly undergone, from the effects of the great demand for gold which specie payments have2 entailed upon us.

  The Bank Directors urge in defence of the measures which they have pursued, the complaints which were made against them, on account of the frequent executions for forgery, which rendered it indispensable that they should withdraw the one-pound notes from circulation, for the purpose of replacing them with coin. If they could not substitute a note better calculated to prevent forgery, than the one which they have hitherto used, this plea is a valid one; for the sacrifice of a small pecuniary interest could not be thought too great, if it took away the temptation to the crime of forgery, for which so many unfortunate persons were annually executed; but this excuse comes with a bad grace from the Bank of England, who did not discover the importance of preventing forgery by the issue of coin till 1821, after they had made such large purchases of gold, that they were under the necessity of applying to Parliament for a bill, to enable them to issue coin in payment of their notes, which, by Mr. Peel’s bill, they were prevented from doing till 1823. How comes it that they did not make this discovery in 1819, when the Committees of the Lords and Commons were sitting on Bank payments? Instead of being eager at that period to commence specie payments, they remonstrated, in a manner which many thought unbecoming, against any plan of metallic payments, which did not leave the uncontrolled power of increasing or diminishing the amount of the currency in their hands. It surely is not forgotten, that on an application by the Lords’ Committee to the Bank, dated the 24th March, 1819, asking if “the Bank had any, and what objections to urge against the passing a law to require it should pay its notes in bullion on demand, but in sums not less in amount than 100l., 200l., or 300l., at 3l. 17s. 10½d., and to buy gold bullion at 3l. 17s. 6d. by an issue of its notes; the said plan to commence after a period to be fixed for that purpose;” the Directors answered, “The Bank has taken into consideration the question sent by the Committee of the House of Lords, under date of the 24th March, and is not aware of any difficulty in exchanging, for a fixed amount of bank notes, gold bullion of a certain weight, provided it be melted, assayed, and stamped by his Majesty’s mint.

  “The attainment of bullion by the Bank at 3l. 17s. 6d. is in the estimation of the Court so uncertain, that the Directors, in duty to their proprietors, do not feel themselves competent to engage to issue bullion at the price of 3l. 17s. 10½d.; but the Court beg leave to suggest, as an alternative, the expediency of its furnishing bullion of a fixed weight to the extent stated at the market price as taken on the preceding foreign post day, in exchange for its notes; provided a reasonable time be allowed for the Bank to prepare itself to try the effect of such a measure.”1

  If this proposal had been acceded to, the Bank would itself have determined the price at which it should have sold gold from time to time to the public, because by extending or curtailing their issues, they had the power to make the price of gold just what they pleased, 4l. or 10l. an ounce, and at that price to which they might choose to elevate it, they graciously proposed to sell it, “provided a reasonable time be allowed to prepare itself to try the effect of such a measure.”

  After this proposal, after the representation made to the Chancellor of the Exchequer by the Directors of the Bank of England on the 20th May, 1819* , it will not be said that the question of forgery appeared so urgent to the Directors that they were eager to substitute coin for their small notes in 1819, however important the question became in their view in 1820.

  It is a question exceedingly difficult to determine what the effect has been on the value of gold, and consequently on the value of money produced by the purchases of bullion made by the Bank. When two commodities vary, it is impossible to be certain whether one has risen, or the other fallen. There are no means of even approximating to the knowledge of this fact, but by a careful comparison of the value of the two commodities, during the period of their variation, with the value of many other commodities.

  Even this comparison does not afford a certain test, because one half of the commodities to which they are compared, may have varied in one direction, while the other half may have varied in another: by which half shall the variation of gold be tried? If by one it appears to have risen, if by the other to have fallen. From observations, however, on the price of silver, and of various other commodities, making due allowance for the particular causes which may have specially operated on the value of each, Mr. Tooke, one of the most intelligent witnesses examined by the Agricultural Committee, came to the conclusion that the eager demand for gold made by the Bank in order to substitute coin for their small notes, had raised the value of currency about five per cent.1 In this conclusion, I quite concur with Mr. Tooke. If it be well founded, the whole increased value of our currency since the passing of Mr. Peel’s bill in 1819, may be estimated at about ten per cent. To that amount, taxation has been increased by the measure for restoring specie payment; to that amount the fall of grain, and with it of all other commodities has taken place as far as this cause alone has operated on them; but all above that amount, all the further depression which the price of corn has sustained, must be accounted for by the supply having exceeded the demand; a depression, which would have equally occurred, if no alteration whatever had been made in the value of the currency.

  It is, indeed, alleged by many of the landed interest, that to one cause alone, all the distress in agriculture is to be ascribed. They go so far as to say, that there is now no surplus produce on the land, but what is paid to the Government for taxes; that there is nothing whatever left for rent or profit; that whatever rent is paid, is derived from the capital of the farmer, and all these effects they charge on the alteration in the value of the currency.

  It is evident that those who advance this most extravagant proposition, do not know how the alteration in the value of the currency affects the different interests of a country. If it injures the debtor, it in the same degree benefits the creditor; if its pressure is felt by the tenant, it must be advantageous to the landlord, and to the receivers of taxes. They, then, who maintain this doctrine, must be prepared to contend that all that fund, which formerly constituted the rent of the landlord, and the profits of the farmer, are, by the alteration in the value of money, transferred to the State, and are now paid to the receivers of taxes, and, among them, the stock-holders. That the situation of the stock-holder is improved, by his dividends being paid in a currency increased in value, there can be no doubt; but what evidence is there to shew that his situation is so much improved, that he has now at his disposal, in addition to his former means of enjoyment, all those which were before at the disposal of the whole of the tenantry, and of the landlords of the country? So wild an assertion cannot be for a moment entertained; we have not heard of splendid equipages and superb mansions having been built by the stock-holders since, and in consequence of, the Bill of 1819. Besides, if this were true, how comes it that the profits of the merchant and manufacturer have escaped the fund-holder, this devouring monster, as he has been called?1 Are not their profits governed by the same principle, and by the same law, as the profits of the farmer? How have they contrived to exempt themselves from this desolating storm? The answer is plain, there is no truth in the allegation. Agriculture has been depressed by causes of which the currency forms only a little part. The peculiar hardships which the landed interest are suffering, are of a temporary character, and will continue only while the supply of produce exceeds the demand. A remunerative price is impossible while this cause of low value continues; but the situation of things which we now witness cannot have any permanence.

  Is it not quite certain, that if the pressure on the farmers, from the alteration in the value of currency, and the increased taxation consequent upon it, has been so great as to take from them all the profits of their capital, it must also have taken away the profits of all other persons employing capital? for it is quite impossible that one set of capitalists should be permanently without any profit at all, whilst others are making reasonable profits.

  On the part of the landlords it may be said, that they are encumbered with fixed charges on their estates, such as dowers, provision for daughters, and younger children, mortgages, &c. It cannot be denied that an alteration in the value of currency must greatly affect such engagements, and must be very burdensome to landlords; but they should remember that they or their fathers benefited by the depreciation of the value of the currency. All their fixed engagements, their taxes included, were for many years paid in the depreciated medium. If they suffer injustice now, they profited by injustice at a former period; and if the account were fairly made up, it would, I believe, be found that, as far as alteration in the value of currency is concerned, they have little just cause for complaint.

  But, on the score of money engagements, which are now affected by the increased value of currency, have the commercial interest no cause for complaint? Are they not debtors in as large an amount as the landed interest? How many persons have retired from business, whose capitals are, directly or indirectly, still employed by their successors? What vast sums are employed by bankers and others in discounting bills? For the whole of this value there must be debtors, and the increased value of money could not have failed very much to aggravate the pressure of their debts.

  I mention these circumstances to shew that if the real efficient cause of the distress of the landed gentlemen was the increased value of money, it ought to have produced similar distress in other quarters;—it has not done so, and therefore I have a right to infer, that the cause of the distress has been mistaken.

  The profits of the farmer must bear some uniform proportion to the profits of the other classes of capitalists; they are subject to temporary fluctuations, perhaps, in a greater degree than the profits of others; but the circumstances of which they complain, though severe and aggravated at the present time by other causes, yet are by no means new or uncommon.

  Mr. Tooke, in his evidence before the Agricultural Committee, in pages 230 and 231, has furnished us with extracts from publications in the last century, in which the ruin of the landed interest was foretold in terms not very unlike those used in the present day. Those difficulties have passed, and the present ones will, with a little good legislation, soon only be matter of history.

  At a late Court of Proprietors of Bank Stock, the Directors said that, so far from having reduced the amount of the circulation since 1819, they had considerably increased it, and that it was this year actually more by 3,000,000l. than the amount of the circulation at the same period last year, or the year preceding.1 If the Directors were quite correct in this statement, it is no answer to the charge of their having kept the circulation too low, and thereby caused the great influx of gold. My question to them is, “Was your circulation so high as to keep the exchange at par?” To this they must answer in the negative; and therefore I say, that if in consequence of the importation of gold, that metal is enhanced in value, and the pressure on the country is thereby increased, it is because the Bank did not issue a sufficient quantity of notes to keep the exchange at par. This charge is of the same force whether the amount of bank-notes has, in point of fact, been stationary, increasing, or diminishing.

  But I dispute the fact of the circulation having been even half a million higher in amount in 1822, than in 1821 and 1820. The mode of proving the proposition, adopted by the Bank, is not satisfactory; they say, in 1821 we had 23,800,000l. in circulation, and now the notes in circulation, with the sovereigns we have since issued, amount to 3,000,000l. more. But as sovereigns are circulated in Ireland, and in other districts of the United Kingdom, how can they affirm, that in the same channel in which 23,800,000l. bank-notes circulated in 1821, 26,800,000 bank-notes and sovereigns together, are now in circulation? I believe the contrary to be the fact, for I find that the amount of notes of five pounds and above, which have been in circulation for several years past, in the month of February is as follows:—

  Years		£.
  1815	—	16,394,359
  1816	—	15,307,228
  1817	—	17,538,656
  1818	—	19,077,951
  1819	—	16,148,098
  1820	—	15,393,770
  1821	—	15,766,270
  1822	—	15,784,770

  And as the notes of five pounds and upwards have not increased 400,000l. since 1820, I find it impossible to believe that the circulation of a smaller denomination can have increased in any much larger proportion.

  Before I conclude this section I must observe that the complaints made against the Bank for refusing to lend money on discount at four per cent. are without any good foundation. The reason for such complaints is, that by lending at four per cent. they would lower the rate of interest generally, and the landed interest would be benefited by being able to raise money on mortgage on cheaper terms than they now pay for it. I believe, however, that no amount of loans which the Bank might make, and no degree of lowness of interest at which they might choose to lend, would alter the permanent rate of interest in the market. Interest is regulated chiefly by the profits that may be made by the use of capital, it cannot be controlled by any bank, nor by any assemblage of banks. During the last war the market rate of interest for money was, for years together, fluctuating between seven and ten per cent.; yet the Bank never lent at a rate above five per cent. In Ireland the Bank by its charter is obliged to lend, at a rate of interest not exceeding five per cent., yet all other persons lend at six per cent.

  A Bank has fulfilled all its useful functions when it has substituted paper in the circulation for gold; when it has enabled us to carry on our commerce with a cheap currency, and to employ the valuable one which it supplants productively: provided it fulfils this object it is of little importance at what rate of interest it lends its money.

  One argument used by a very enlightened member of Parliament, during a late discussion on the rate of interest charged by the Bank, was rather a singular one; he said that the Bank of France, and other Banks on the Continent, lent at a low rate, and therefore, the Bank of England should do so.1 I can see no connexion between his premises and conclusion. The Bank of France ought to be2 governed by the market rate of interest and the rate of profits in France; the Bank of England by the market rate of interest and the rate of profit in England. One may be very different from the other. From the whole of his argument, I should infer that he considered a low rate of interest, in itself, beneficial to a country. The very contrary, I imagine, is the truth. A low rate of interest is a symptom of a great accumulation of capital; but it is also a symptom of a low rate of profits, and of an advancement to a stationary state; at which the wealth and resources of a country will not admit of increase. As3 all savings are made from profits, as a country is most happy when it is in a rapidly progressive state, profits and interest cannot be too high. It would be a poor consolation indeed to a country for low profits and low interest, that landlords were enabled to raise money on mortgage with diminished sacrifices. Nothing contributes so much to the prosperity and happiness of a country as high profits.

  This complaint against the Bank, which comes, I think, with an ill grace from a Member of Parliament, as representing the public interest, might be consistently urged by a Bank proprietor at a general meeting of their body, for it is difficult to account on what principle of advantage to the concern which they manage, the Directors can think it right to lend their proprietors[’] money at three per cent. to Government* when they could obtain four per cent. from other borrowers; but with this the public have no concern, and they and their proprietors should be left to settle this matter as they please.

  section vi

  On the Effects of a Low Value of Corn on the Rate of Profits

  When I use the term—a low value of corn, I wish to be clearly understood. I consider the value of corn to be low, when a large quantity is the result of a moderate quantity of labour. In proportion, as for a given quantity of labour a smaller quantity of corn is obtained, corn will rise in value. In the progress of society there are two opposite causes operating on the value of corn; one, the increase of population, and the necessity of cultivating, at an increased charge, land of an inferior quality, which always occasions a rise in the value of corn; the other, improvements in agriculture, or the discovery of new and abundant foreign markets, which always tend to lower the value. Sometimes one predominates, sometimes the other, and the value of corn rises or falls accordingly.

  In speaking of the value of corn, I mean something rather different from its price;—when its value rises, its price generally rises, and would always do so, if money, in which price is uniformly estimated, were invariable in value. But corn may not vary as compared with all other things—it may not be the result of either more or less labour, and yet it may rise or fall in price, because money may become more plentiful and cheap, or more scarce and dear. Nothing is of so little importance to the community collectively, as an alteration in the price of corn, caused by an alteration in the value of money merely; nothing of greater importance, as far as its profits and its wealth are concerned, than a rise or fall in the price of corn, when money continues of a fixed and invariable value. We will suppose money to continue at a fixed and invariable value, that we may ascertain the effects of a rise or fall in the value of corn; which on this supposition will be synonymous with a rise or fall in its price.

  Corn being one of the chief articles on which the wages of labour are expended, its value, to a great degree, regulates wages. Labour itself is subject to a fluctuation of value, in the same manner as every thing which is the subject of demand and supply, but it is also particularly affected by the price of the necessaries of the labourer; and corn, as I have already observed, is amongst the principal of those necessaries. In a former section1 I have endeavoured to shew, that a general rise of wages will not raise the prices of commodities on which labour is expended. If wages rose in one trade, the commodity produced in that trade must rise, to place the producer of it on a par with all other trades; but when wages affect all producers alike, a rise in the value of all their commodities must, as I have on a former occasion remarked, be a matter of great indifference to them, as whether they were all at a high price or all at a low price, their relative values would be the same, and it is the alteration of their relative values only which gives to the holders of them a greater or less command of goods. Every man exchanges his goods, finally, for other goods, or for labour, and he cares little whether he sells his own goods at a high price if he is obliged to give a high price for the goods he purchases, or sells them at a low price, if, at the same time, he can also procure the goods he wants at a low price. In either case his enjoyments are the same.

  With a permanently high price of corn, caused by increased labour on the land, wages would be high; and, as commodities would not rise on account of the rise of wages, profits would necessarily fall. If goods worth 1000l. require at one time labour which cost 800l., and at another the price of the same quantity of labour is raised to 900l., profits will fall from 200l. to 100l. Profits would not fall in one trade only, but in all. High wages, when general, equally affect the profits of the farmer, the manufacturer, and the merchant. There is no other way of keeping profits up but by keeping wages down. In this view of the law of profits, it will at once be seen how important it is that so essential a necessary as corn, which so powerfully affects wages, should be at a low price; and how injurious it must be to the community generally, that, by prohibitions against importation, we should be driven to the cultivation of our poorer lands to feed our augmenting population.

  Besides the impolicy of devoting a greater portion of our labour to the production of food than would otherwise be necessary, thereby diminishing the sum of our enjoyments and the power of saving,1 by lowering profits, we offer an irresistible temptation to capitalists to quit this country, that they may take their capitals to places where wages are low and profits high. If landlords could be sure of the prices of corn remaining steadily high, which happily they cannot be, they would have an interest opposed to every other class in the community; for a high price, proceeding from difficulty of production, is the main cause of the rise of rent: not that the rise of rent, the advantage gained by the landlord, is an equivalent for the disadvantage imposed on the other classes of the community, in being prevented from importing cheap corn; we have not that consolation: for to give a moderate advantage to one class, a most oppressive burthen must be laid on all the other classes.

  This advantage to the landlords themselves would be more apparent than real; for, to complete the advantage, they should be able to calculate on steady as well as high prices. Nothing is so injurious to tenants as constantly fluctuating prices, and under a system of protection to the landlord, and prohibition against the importation of foreign corn, tenants must be exposed to the most injurious fluctuations of profits, as I shall attempt to shew in the next Section. When the profits of a farmer are high, he is induced to live more profusely, and to make his arrangements as if his good fortune were always to continue; but a reverse is sure to come: he has then to suffer from his former improvidence, and he finds himself entangled in expenses, which render him utterly unable to fulfil his engagements with his landlord.

  The landlord’s rent is, indeed, nominally high, but he is frequently in the situation of not being able to realize it; and little doubt can exist, that a more moderate and steady price of corn, with regular profits to the tenant, would afford to the landlord the best security for his happiness and comfort, if not for the receipt of the largest amount of rent.

  It appears, then, that a high but steady price of corn is most advantageous to the landlord; but, as steadiness in a country situated as ours, is nearly incompatible with a price high in this country, as compared with other countries, a more moderate price is really for his interest. Nothing can be more clearly established, than that low prices of corn are for the interest of the farmer, and of every other class of society; high prices are incompatible with low wages, and high wages cannot exist with high profits.

  I must here notice an error, which has been supported by one of those, whose talents give them great authority in the place where the opinion was delivered;1 it is, that though the manufacturer has it in his power to raise the price of his commodity when it is taxed, and even, on some occasions, to profit by its being taxed, yet the farmer cannot so indemnify himself, and that, consequently at the end of his lease, if not before, the whole weight of the tax must fall on his landlord. This is an error of long standing, for it is supported by no less an authority than Adam Smith.2 The subject of rent, and the laws by which its fall and rise are regulated, have been explained since the time of Adam Smith; and all those men who are acquainted with this explanation, are incapable of falling into the error. I am not now going into the question of rent; that subject has been well elucidated by several able writers. But I would ask those who still adhere to Adam Smith’s doctrine, on whom the tax on land could fall when it was equal to three shillings per acre, if the land cultivated were of the description mentioned by Mr. Harvey in his evidence, and to which I have already referred;3 land for which eighteen-pence only is paid as rent? The farmer must either get lower profits than other farmers who pay higher rents, or he must be able to transfer this charge to the consumer. But why should he remain in an occupation in which his profits are below the profits of all other capitalists in the community? He might require time to remove himself from an unprofitable employment; but he would not perseveringly continue in it, more than any other person similarly circumstanced in other occupations.

  I have taken the instance mentioned by Mr. Harvey, because, as he is a practical man, weight will be given to his information; but I am myself fully persuaded that a large quantity of corn is raised in every country, for the privilege of raising which, no rent whatever is paid. Every farmer is at liberty to employ an additional portion of capital on his land after all that which is necessary for affording his rent, has already been employed. The corn raised with this capital, can only afford the usual profits if no rent is paid out of it. Impose a tax on producing it, without admitting a compensation by a rise of price, and that moment you offer an inducement to the withdrawing of that portion of capital from the land, thereby diminishing the supply. No point is more satisfactorily established in my opinion, than that every tax imposed on the production of raw produce falls ultimately on the consumer, in the same way as taxes on the production of manufactured commodities fall on the consumers of those articles.

  section vii

  Under a system of Protecting Duties established with a view to give the Monopoly of the Home Market to the Home Grower of Corn, Prices cannot be otherwise than fluctuating

  Protecting duties on the importation of corn must always be imposed on the supposition that corn is cheaper in foreign countries, by the amount of such duties; and that if they were not imposed1 , foreign corn would be imported. If foreign corn were not cheaper, no protecting duty would be necessary, for, under a system of free trade, it would not be imported. To the amount, then, of the protecting duty, the ordinary and average price of corn must be supposed to be1 higher in the country imposing it than in others, and when abundant harvests occur, before any corn can be exported from a country so circumstanced, corn must fall from its usual and average price, not only by the amount of the duty, but also by the further amount of the expenses of exporting the corn. Under a system of free trade, the price of corn in two countries could not materially differ more than the expenses attending the exportation of it from one country to the other; and therefore, if an abundant harvest occurred in either, and was not common to both, after an inconsiderable fall of price, a vent for the super-fluous produce would be immediately found in exportation. But under a system of protecting duties, or of prohibitory laws, the fall in the price of corn from an abundant crop, or from a succession of abundant crops, must be ruinous to the grower, before he can relieve himself by exportation. If we could listen to Mr. Webb Hall’s recommendation of a fixed duty of 40s., on the importation of foreign corn;2 and if he be right in supposing that 40s. is the difference of the natural price of corn in England and in the corn countries, on every occasion of abundant harvests, corn must actually fall 40s., before it can be the interest of any party to export it to the Continent; a fall so great that, if the farmers were subjected to it, they would be totally unable to pay their rents in abundant seasons, without a great sacrifice of capital.

  The same observation is applicable to the present corn law, which prohibits importation till the price rises to 80s. The effect of this law is to make the price of corn in this country habitually and considerably above the price in other countries; and therefore, on occasion of abundant crops, it must fall below the price of those other countries, before any relief can be afforded to the grower by exportation. Its effect, indeed, in this view, is precisely the same as that of the high-fixed duty which we have been already considering.

  But the present law has another capital defect, from which the system of fixed duties is free. When the average price of wheat reaches 80s. per quarter, the ports are now open for three months, for an unlimited importation of foreign wheat, duty free. With prices somewhat about 40s. per quarter on the Continent, in average years, the temptation to import into this country, during the three months that the ports are open, must operate to the introduction of an enormous quantity.

  During these three months, and for a very considerable time afterwards, for the effect cannot cease with the shutting of the ports, the home grower and the foreign grower are placed in a state of free competition, to the ruin of the former. By prohibitory duties he is encouraged to employ his capital on the poorer lands of this country, which require a great expense for a small produce; and when he has an unusually short crop, and most stands in need of a high price, he is all at once exposed to the free competition of the grower of corn on the Continent, to whom a price of 40s. would be amply sufficient to compensate him for the whole cost of production. A system of fixed duties protects the farmer against this particular danger, but it leaves him exposed, in the same degree as on the present system, to all the evils which arise from abundant crops, and which can never fail to accompany every plan of a corn law, which shall elevate the price of corn in the country in which they prevail, considerably above the level of the prices of other countries.

  It must not be supposed, however, that to obviate this difficulty, the importation of corn should be at all times allowed without the payment of any duty whatever; that is not under our circumstances, the course which I should recommend. I have already shewn in Section 3, that with a view to the real interest of the consumer, in which the interests of the whole community are, and ever must be, included, whenever any peculiar tax falls on the produce of any one commodity, from the effects of which all other producers are exempted, a countervailing duty to that amount, but no more, should on every just principle be imposed on the importation of such commodity; and further, that a drawback should be allowed, to the same amount also on the exportation of the like commodity. If, before any taxation, the remunerating price of wheat was 60s. per quarter, both in England and on the Continent, and in consequence of the imposition of a tax, such as tithes, falling exclusively on the farmer, and not on any other producer, wheat was raised in England to 70s., a duty of 10s. should be also imposed on the importation of foreign corn. This tax on foreign corn, and on home corn also, should be drawn back on exportation. However large the aggregate amount might be of the drawback given to the exporter it would only be returning to him a tax which he had before paid, and which he must have to place him in a fair state of competition in the foreign markets, not only with the foreign producer, but with his own countrymen who are producing other commodities. It is essentially different from a bounty on exportation, in the sense that the word bounty is usually understood; for by a bounty is generally meant a tax levied on the people for the purpose of rendering corn unnaturally cheap to the foreign consumer, whereas, what I propose, is to sell our corn at the price at which we can really afford to produce it, and not to add to its price a tax which shall induce the foreigner rather to purchase it from some other country, and deprive us of a trade, which, under a system of free competition, we might have selected.

  The duty which I have here proposed, is the only legitimate countervailing duty, which neither offers inducements to capital to quit a trade, in which for us it is the most beneficially employed, nor holds out any temptations to employ an undue proportion of capital in a trade to which it would not otherwise have been destined. The course of trade would be left precisely on the same footing as if we were wholly an untaxed country, and every person was at liberty to employ his capital and skill in the way he should think most beneficial to himself. We cannot now help living under a system of heavy taxation, but to make our industry as productive to us as possible, we should offer no temptations to capitalists, to employ their funds and their skill in any other way than they would have employed them, if we had had the good fortune to be untaxed, and had been permitted to give the greatest development to our talents and industry.

  The Report of the Committee on Agricultural Distress in 1821, contains some excellent statements and reasonings on this subject.

  To that important document I can with confidence refer, in support of the principles which I am endeavouring to lay down on the impolicy of protecting corn laws. The arguments in it in favour of freedom of trade, appear to me unanswerable; but it must be confessed, that in that same Report, recommendations are made utterly inconsistent with those principles.1

  After condemning restrictions on trade, it recommends measures of permanent restriction; after shewing the evils resulting from prematurely taking poor lands into cultivation, it countenances a system, which, at all sacrifices, is to keep them in tillage. In principle, nothing so odious as monopoly and restriction; in practice, nothing so salutary and desirable.

  The Committee on Agriculture this year avoid taking any notice of the sound doctrines entertained by the last Committee, but have founded their whole Report on the erroneous ones; and conclude their recommendations to the House in the following words:—“If the circumstances of this country should hereafter allow the trade in corn to be permanently settled upon a footing constantly open to all the world, but subject to such a fixed and uniform duty as might compensate to the British grower the difference of expense at which his corn can be raised and brought to market, together with the fair rate of profit upon the capital employed, compared with the expense of production, and other charges attending corn grown and imported from abroad, such a system would, in many respects, be preferable to any modification of regulations depending upon average prices, with an ascending and descending scale of duties; because it would prevent the effects of combination and speculation, in endeavouring to raise or depress those averages, and render immaterial those inaccuracies which from management or negligence have occasionally produced, and may again produce such mischievous effects upon our market; but your Committee rather look forward to such a system as fit to be kept in view for the ultimate tendency of our law, than as practicable within any short or definite period.”1

  The system which we are to keep in view for the ultimate tendency of our law, we are told, is one of a fixed duty; but on what principle is the fixed duty to be calculated? not on that which I have endeavoured to shew is the only sound one, namely, that the duty should accurately countervail the peculiar burthens to which the grower of corn is subject, but a fixed duty which should compensate to the British grower the difference of expense at which his corn can be raised and brought to market, compared with the expense of production, and other charges, attending corn grown and imported from abroad. Instead of holding out any hope to the consumer, that we shall at any future time legislate on a principle which shall enable him to purchase corn at as cheap a price as British industry shall be enabled to obtain it for him; instead of giving any security to the British capitalist, that wages shall not be unnaturally raised in this country, by obliging the labourer to purchase corn at a dear, and not at a cheap rate, a security so essential to the keeping up the rate of profits; instead of bidding the farmer look forward to a time when he will be spared from the fluctuations in the price of the commodity which he raises, and which are so destructive to his interests; we are told that the present mode in which the price of corn is kept in this country habitually and considerably above its price in other countries, is not, perhaps, the best mode of effecting that object, as it may be more conveniently done, by means of a fixed duty, instead of a varying duty; but at any rate, corn is to be rendered habitually and considerably dearer in this country, than in others. A duty calculated upon the principle of the Committee cannot fail to perpetuate a difference of price between this and other countries, equal to the difference of expense of growing corn in this country beyond the expense of growing it in others. If we had not already pushed the endeavour of providing food for ourselves too far,—if we had not by our own acts made the expense of growing corn in this country greater than in others, such a law would be nugatory, because no difference of expense would exist. Is it not then in the highest degree absurd, first to pass a law under the operation of which the necessity is created of cultivating poor lands, and then having so cultivated them at a great expense, make that additional expense the ground for refusing ever to purchase corn from those who can afford to produce it at a cheaper price? I can produce a quantity of cloth which affords me a remunerating price at sixty pounds, which I can sell to a foreign country, if I will lay out the proceeds in the purchase of thirty quarters of wheat at two pounds per quarter, but I am refused permission to do so, and am obliged, by the operation of a law, to employ the capital which yielded me sixty pounds in cloth, in raising fifteen quarters of wheat at four pounds per quarter.

  The exchange of the cloth for wheat, the production of the cloth1 is wholly prevented by the countervailing duty of two pounds per quarter on the importation of wheat, which obliges me to raise the corn, and prevents me from employing my capital in the making of cloth for the purpose of exchanging it for wheat.

  It is true, indeed, that in both cases I raise a commodity worth sixty pounds, and to those who look only at money, and not money’s worth, either of these employments of my capital appears equally productive, but a moment’s reflection will convince us that there is the greatest difference imaginable between obtaining (with the same quantity of labour, mind) thirty quarters of wheat, and fifteen quarters, although either should, under the circumstances supposed, be worth sixty pounds.

  If the principle recommended by the Committee were consistently followed, there is no commodity whatever which we can raise at home, which we should ever import from abroad; we should cultivate beet-root and make our own sugar, and impose a duty on the importation of sugar equal to the difference of expense of growing sugar here, and growing it in the East or West Indies. We should erect hot-houses, and raise our own grapes for the purpose of making wine, and protect the maker of wine by the same course of policy. Either the doctrine is untenable in the case of corn, or it is to be justified in all other cases. Does the purchaser of a commodity ever inquire concerning the terms on which the producer can afford to raise or make it? His only consideration is the price at which he can purchase it. When he knows that, he knows the cheapest mode of obtaining it; if he can himself produce it cheaper than he can purchase it, he will devote himself to its production rather than to the production of the commodity with which he, in fact, must otherwise purchase it.

  But there are persons, and of the number of those too who are considered of authority on these matters, who say this reasoning would be correct if we were about to employ capital on the land with a view to obtain more corn; that then it would, undoubtedly, be wise to consider whether we could purchase it from abroad cheaper than we could grow it at home, and govern our proceedings accordingly, but that when capital has been expended on the land, it is quite another question; since much of that capital would be lost if we then resolved rather to import cheap corn from abroad than grow it at a dear price at home. That some capital would be lost cannot be disputed, but is the possession or preservation of capital the end, or the means? The means, undoubtedly. What we want is an abundance of commodities, and if it could be proved that by the sacrifice of a part of our capital we should augment the annual produce of those objects which contribute to our enjoyment and happiness, we ought not, I should think, to repine at the loss of a part of our capital.

  Mr. Leslie has invented an ingenious apparatus, by the use of which we might fill our ice-houses with ice.1 Suppose a capital of half a million were expended on these machines, would it not nevertheless be wise in us, to get our ice, without any expense, from the frozen ponds in our neighbourhoods, rather than employ the labour, and waste the acid or other ingredients in the manufacture of ice, although, by so doing, we should for ever sacrifice the 500,000l. which we had expended on air-pumps?

  In this recommendation, which must have the effect of perpetuating the difference between the price of corn here and its price in other countries, we should naturally conclude that the Committee did not admit the evils which, from time to time, must thence inevitably arise in this country. Quite the contrary; they admit them to the fullest extent, and they refer to the statements made on that subject in a former report, for the purpose of expressing their approbation of the reasoning which is founded on them. They say,2 “the excessive inconvenience and impolicy of our present system have been so fully treated, and so satisfactorily exposed in the Report already alluded to3 (p. 10 and 12,) that it is unnecessary to do more than to refer to it; adding only, that every thing which has happened sub-sequent to the presentation of that Report, as well as all our experience since 1815, has more and more tended to demonstrate how little reliance can be placed upon a regulation which contains an absolute prohibition up to a certain price, and an unlimited competition beyond that price; which, so far from affording steadiness to our market, may at one time reduce

  prices, already too low, still lower than they might have been even under a free trade; and at another, unnecessarily enhance the prices already too high, which tends to aggravate the evils of scarcity, and render more severe the depression of profits1from abundance.”

  Here the two evils of our corn law are very fairly stated; and against one of them, that of unlimited competition beyond the price of 80s., a remedy, though by no means the best which might have been temporarily established, is recommended; but, instead of suggesting any means of alleviating or remedying the other evil, proceeding from abundance, which is so fully acknowledged, measures are recommended for immediate and temporary adoption; and others are suggested as desirable to be at a future time permanently adopted, which cannot fail to perpetuate this evil, because they cannot fail to make the price of corn constantly and considerably higher in this than in any other neighbouring country.

  One of the grounds advanced for high duties on the importation of corn is, that the manufacturer is protected by high duties against the competition of the foreign manufacturer, and that the cultivator of the soil should have a similar protection against the foreign grower of corn. To this it is impossible to give an answer in language more satisfactory than has been done by Lord Grenville.

  “If the measures which had formerly been adopted for the protection of trade and manufactures were right, let them be continued; if wrong, let them be abrogated; not suddenly, but with that caution with which all policy, however erroneous, so engrafted into our usage by time, should be changed; but let it be consecrated as a principle of legislation, that in no case should the grounds for advising the Legislature to afford any particular protection, rest on the protection which might have been afforded in any other quarter. In fact, he could not well conceive how the noble earl1 could argue2 , that measures which he admitted to have been wrong with respect to manufactures, would nevertheless be right with respect to Agriculture.

  “It would be an extraordinary mode of doing justice, thus to declare that, because a large, the largest, part of the community were already oppressed by favours shewn to one particular class, they should be still farther oppressed by favours shewn to another particular class.”—Speech, March 15, 1815.3

  If any thing more is required against this pretension of protection for the land, it is furnished in the following passage of the Report of the Agricultural Committee of last year:4

  “They, (the Committee), observe, that one of the witnesses, in order to illustrate his ideas and the wishes of the petitioners, has furnished a table of the duties payable on foreign manufactured articles, of which several are subject to duties of excise in this country; and upon which the importation duty, as, for instance, upon the article of glass, is imposed in a great measure to countervail the duty upon that article manufactured in this kingdom.

  “But the main ground upon which your Committee are disposed to think that the House will look with some mistrust to the soundness of this principle, is—first, that it may be well doubted, whether (with the exception of silk) any of our considerable manufactures derive benefit from this assumed protection in the markets of this country: for how could the foreign manufactures of cotton, of woollens, of hardware, compete with our own in this country, when it is notorious that we can afford to undersell them in the products of those great branches of our manufacturing industry, even in their own markets, notwithstanding that cotton and wool are subject to a direct duty on importation, not drawn back upon their export in a manufactured state, as well as to all the indirect taxation, which affects capital in these branches, in common with that capital which is employed in raising the productions of the soil?”

  This is followed by other passages which are excellent, and all1 tend to shew, that the protection which manufactures are said to possess, is not really afforded them; though, if it were, Lord Grenville’s argument is conclusive against that being a ground for extending protection to agriculture.

  It is to be hoped that we shall, even in the present Session of Parliament, get rid of many of these injurious laws; a better spirit of legislation appears likely to prevail in the present day; and that absurd jealousy which influenced our forefathers, will give way to the pleasing conviction, that we can never, by freedom of commerce, promote the welfare of other countries without also promoting our own.

  The passage from the Report is useful in another respect: it shews us that the writer of it understood well what a countervailing duty is, and should be; for he states that the duty on the importation of glass “is imposed in a great measure to countervail the duty upon that article manufactured in this kingdom.” How is this passage to be reconciled with the recommendation in both Reports, that, in imposing a duty on the importation of corn, “it should be calculated fairly to countervail the difference of expense, including the ordinary rate of profit, at which corn, in the present state of this country, can be grown and brought to market2 within the United Kingdom, compared with the expense, including also the ordinary rate of profit, of producing it in any of those countries from whence our principal supplies of foreign corn have usually been drawn, joined to the ordinary charge of conveying it from thence to our market”?1

  section viii

  On the Project of advancing Money on Loan, to Speculators in Corn, at a low Interest

  It is allowed by the Report, that “the universal rule of allowing all articles, as much as possible, to find their own natural level, by leaving the supply to adjust itself to the demand,” discouraged the Committee from recommending that government should employ money, in making purchases of corn, with a view to sell it when the price rose; but the Committee do not appear to have seen that the same universal rule, of which they speak with approbation, ought to have discouraged them also from recommending that government should advance money, at a low rate of interest, to persons who should purchase wheat, to deposit it in the King’s warehouses, while it was under 60s. per quarter.2

  Will not such an advance of money at a low rate of interest, and for twelve months certain, if the parties desire it, prevent the article from “finding its own level,” and “will the supply be left to adjust itself to the demand?”

  If the cause of the low price of corn be owing to an abundant quantity in the country, and not to an abundant quantity hurried prematurely to market by the distress of the farmers, the proposed remedy will be really mischievous, as in that case we must go through the ordeal of low prices, and increased consumption, which is always in a degree consequent on low price, before the supply will adjust itself to the demand, and prices become again remunerative. By the encouragement thus given to storing corn for a twelvemonth, the period of glut may be retarded, but it must come at last. On the other supposition, that from alarm or distress more than a due portion of corn is prematurely sent to market, and that before the next harvest the whole supply will, in consequence, prove deficient, and the price will rise; I must observe, that sharp-sighted individuals, prompted by a regard to their interest, can discover this, if it be so, with more certainty than Government. Money is not wanted to purchase the wheat thus unduly brought to market; nothing is required but a conviction of the probability of a diminished supply, or an increased demand, and a probable rise of price, to awaken the spirit of speculation. If there were any well-founded opinion of such a rise, we should soon witness a more than usual activity among the corn-dealers. When there was a prospect of continued wet weather, just before the harvest of last year, did we not see an immediate spring in the price of corn? On what was such rise founded, but on an anticipation of probable scarcity, and an increased price? If, then, there be any good foundation for a probable deficiency before the wheat of the next harvest comes into use, individuals will be found to speculate without any encouragement from Government; the difference between a rate of interest of 3 per cent. and of 5 per cent. must be of little importance in such a transaction, and as far as the public is concerned may be wholly neglected, when we are considering the advantages of such a measure.

  It has been said that similar advances have been made to the commercial interest on more than one occasion, why then should the agricultural interest be excluded from a similar benefit? In the first place, I doubt whether the measure be justifiable in any case whatever; but it cannot be disputed that the commercial class made their application for this indulgence under very different circumstances from the agricultural class.

  The commercial class are liable to stagnation of business; a market for which they have prepared their goods may, during war, (and it is only during war that such advances have been made,) be shut against them. On the probability of selling their goods, they have given bills which are becoming due, and their character and fortune depend on fulfilling their engagements. All they want is time; by forbearing to produce more of the commodity for which there is a diminished demand, they are sure, though probably with great loss, to dispose of their articles. Is the situation of the farmer any thing like this? Has he any bills becoming due? Do all his future transactions depend on his momentarily sustaining his credit? Are markets ever wholly shut against him? Is it a mere supply of money to meet his bills that he requires? The cases are most widely different, and the analogy which is attempted to be set up between them fails in every particular.

  section ix

  Can the present State of Agricultural Distress be attributed to Taxation?

  The present distress is caused by an insufficient price for the produce of the land, which it appears impossible, with any degree of fairness, to ascribe to taxation. Taxation is of two kinds, it either falls on the producer of a commodity in his character of producer, or it falls on him as a consumer. When a farmer has to pay an agricultural horse-tax, tithes, land-tax, he is taxed as a producer, and he seeks to repay himself, as all other producers do, by imposing an additional price, equivalent to the tax, on the commodity which he produces. It is the consumer, then, that finally pays the tax, and not the producer, as nothing can prevent the latter from transferring the tax to the consumer,1 but the production of too great a quantity of the commodity for the demand. Whenever the price of a commodity does not repay to the producer all the charges of every description which he is obliged to incur, it fails to give him a remunerating price; it places him under a disadvantage, as compared with the producers of other commodities; he no longer gets the usual and ordinary profits of capital, and there are only two remedies by which he can be relieved: one, the diminution of the quantity of the commodity, which will not fail to raise its price, if the demand do not at the same time diminish; the other, the relieving him from the taxes which he pays as a producer. The first remedy is certain and efficacious; the second is of a more doubtful description, because, if the price of the commodity did once remunerate the producer, after the tax was imposed, it could only fall afterwards from increased supply, or diminished demand.

  The repeal of the tax will not diminish quantity; and if it does not further lower the price, it will not increase demand. If the price falls still lower, then the repeal of the tax will not afford relief to the producer. It is only in the case of the commodity falling no lower, although the producer is relieved from one of the charges of production, that he can be said to be benefited by the repeal of a tax on production; and a very reasonable doubt may be entertained, whether the competition of the sellers may not further diminish the price of the commodity in consequence of the repeal of the tax. That taxes on production may be the cause of an excess of the supply above the demand, is true, when the tax is a new one, and when the consumers are unwilling to re-pay, in the additional price, the additional charge imposed on the producer. But this is not the case in this country at the present moment; the taxes are not new ones; the prices of raw produce were sufficiently high, notwithstanding the taxes, to afford a remunerating price to the producer; and no doubt can exist, that if there had been no such taxes, raw produce would have been considerably lower than it now is. The same cause which made wheat fall from 80s. to 60s., or 25 per cent., would have made it fall from 60s. to 45s., if, in consequence of fewer taxes on the land, 60s. and not 80s. had been the ordinary average price. Some of the charges of production have actually been diminished, while there is every reason to conclude, that the quantity consumed by the people has been increasing.

  The alteration in the value of money has been generally supposed to be favourable to the working classes, as their money wages are said not to have fallen in proportion to the increased value of money, and the fall in the price of necessaries. Their condition is then bettered, and their power of consuming increased; but prices can never stand against a great augmentation of quantity, and therefore there is no other rational solution of the cause of the fall of agricultural produce but abundance.

  Taxes on consumers affect consumers generally, and will in no way account for the distress of a particular class, or for an insufficient price of the commodity which they grow or manufacture. The taxes on candles, soap, salt, &c. &c., are not only paid by farmers, but by all persons who consume those commodities. The repeal of those taxes would afford relief to all, and not to the agricultural class particularly.

  Those who maintain, that on no reasonable grounds can it be shewn, that taxation is the cause of agricultural distress and of the low price of corn, are sometimes represented as maintaining that a repeal of taxes will afford no relief; such a conclusion shews a want of candour, or of intelligence, for it is perfectly consistent to maintain, that taxation is not the cause of some particular distress, and at the same time insist that a repeal of taxes would afford relief. When Lord John Russell’s horse falls because he trips over a stone, and is enabled to get up again when relieved from the burthen of his harness, it would surely be incorrect to say that the horse fell because he was burthened with harness; though it would be right to assert, that the tripping over the stone threw him down, while the relief from the confinement of the harness enabled him to get up again.1

  For my own part then, being of opinion that almost all taxes on production fall finally on the consumer, I think that no repeal of taxes could take place which would have any other effect than to relieve consumers generally of a part of the burthens which they now bear. Although I am at all times a friend to the most rigid economy in the public expenditure, yet I am also convinced, that there are causes of distress, to the producers of a particular commodity, arising from abundant quantity, from which no practicable repeal of taxes could materially relieve, particularly if the commodity be agricultural produce, and if its ordinary price be kept above the level of the prices of other countries by restrictions on importation.

  Against such distress no country, and more particularly no country having a bad system of corn laws, is exempted. If we were absolutely without any taxes whatever; if the public expenditure was the most economical possible, and was supported by a revenue drawn from lands appropriated for that purpose; if we had no national debt, no sinking fund, we yet should be exposed to a destructive fall of price from occasional abundance. It is impossible to read Mr. Tooke’s able evidence before the Agricultural Committee of 1821,1 without being struck with the surprising effects which an excess of supply produces on price, and for which there is in fact, no effectual remedy but a reduction of quantity. If there be any other remedy, why do not those who complain of the distress, and who have been in situations so favourable to make themselves heard, state it? With the exception of a reduction of taxation, new and additional protection against the competition of foreigners for every description of agricultural produce, direct purchases to be made by Government, or encouragements to others to make them, I have heard no remedies suggested; and as to the efficacy of these remedies, I must leave that to the reader’s judgment; my own opinion of them having been already most decidedly expressed.

  On the causes which have produced the degree of abundance to which I attribute all that part of the fall of raw produce since 1819, which cannot fairly be ascribed to the alteration in the value of the currency* , it will not be necessary for me to say much; we are, I think, justified in ascribing it to a succession of good crops, to an increasing importation from Ireland, and to the increase of tillage which the high prices and the obstacles opposed to importation during the war occasioned? Many of the gentlemen who gave evidence before the Committee concurred in describing the harvests of 1819 and 1820 as unusually abundant. Mr. Wakefield said on the 5th April, 1821, “I think there is a wonderful quantity of corn in the country; I now think that there is as much corn left in the country, as generally, in common years, there is after harvest.” “I think, that if you were to have for the next two or three years, fair average crops, it would leave you with a great stock in hand.”1

  Mr. Iveson. “I think, the last crop was abundant; the crop of 1820 was considerably beyond an average.” p. 338.

  Mr. J. Brodie. “The crop in Scotland was very abundant last year.”

  “The crop of the year before was above an average crop too.” p. 327.

  Besides this abundant crop at home, the importations from Ireland were unusually great, as will be seen by the following account of the importation of oats, wheat, and wheat-flour, the production of Ireland imported into Great Britain, which was laid before the Agricultural Committee of 1821.2

  Years Ending	Oats.	Wheat.	Wheat flour.
  5th Jan.	Qrs.	Qrs.	Cwt.
  5th Jan. 1818	594,337	50,842	16,238
  1819	1,001,247	95,677	33,258
  1820	759,608	127,308	92,893
  1821	892,605	351,871	180,375
  For three months	437,245	218,764	99,062
  From 5th Jan. 1821
  to 5th April 1821

  It will be seen by the above account, how greatly the importation from Ireland has increased, which, coming in addition to the abundant quantity yielded by the harvests of 1819 and 1820 will, I think, sufficiently account for the depression of price.

  To trace this abundance to its source is not, however, necessary in this case; it is sufficient to shew that the low price cannot have arisen from any other cause but an increased supply, or a diminished demand, to be convinced that the evil admits of no other effectual remedy but a reduction of quantity or an increased demand.

  That an abundant quantity has been exposed to sale, will be shewn by the account1 of the sales in Mark Lane* . It will be found, too, that an unusually large quantity has arrived in the port of London from ports in Great Britain and Ireland.

  It must, indeed, not be forgotten, that the fall of price is attributed to the abundant quantity actually in the market, and the reasoning founded on the doctrine of abundance being the cause of low price, would in no degree be invalidated, if, before the next harvest, our supply should be found to be below the demand, and there should be a great increase of price. We can have no unequivocal proof of abundance but by its effects. I believe in the existence of an abundant quantity, but I should not think my argument in the least weakened if corn should, before next harvest, rise to eighty shillings per quarter.

  conclusion

  Having disposed of most of the subjects which are intimately connected with the question of the policy which it would be wise for this country to adopt, respecting the trade in corn, I shall briefly recapitulate the opinions which will be found more at large in various parts of this inquiry.

  The cause of the present low price of agricultural produce is partly the alteration in the value of the currency, and mainly an excess of supply above the demand. To Mr. Peel’s bill, even in conjunction with the operation of the Bank, no greater effect on the price of corn can, with any fairness, be attributed than 10 per cent., and to that amount the far greatest part of the taxation of the country has been increased: but this increased taxation does not fall on the landed interest only; it falls equally on the funded interest, and every other interest in the country. Suppose the land to pay one half of the whole taxation of the country, after deducting that part of the expenditure which depends on the value of money, and which would therefore be augmented in proportion as money fell in value, the whole increase of taxation which, since 1819, has fallen upon the landed interest, taking tenants and landlords together, cannot have exceeded two millions; but suppose it four millions per annum* ; is four millions per annum the amount of the whole loss sustained by landlords and tenants together, by the fall in the price of agricultural produce? Impossible, because, by the allegations of the landed interest, all rent is now paid from capital, leaving nothing for profit; and therefore, if the only cause of distress be the alteration in the value of the currency, four millions must have constituted all the net income both of landlords and tenants before such alteration, a proposition which no man would venture to sustain. To what other cause then is the distress to be attributed? To what other cause are we to ascribe the extreme depression of all agricultural produce? The answer is, I think, plain, intelligible, and satisfactory; to the general prevalence of abundance arising from good crops, and large importations from Ireland.

  This fall has been increased by the operation of the present corn laws, which have had the effect of driving capital to the cultivation of poor lands, and of making the price of corn in average years in this country greatly to exceed the price in other countries. The price, under such circumstances, must be high, but in proportion as it is raised, so is it liable to a greater fall; for, in abundant seasons, the whole increased quantity gluts our own market, and if it be above the quantity which we can consume, rapidly depresses the price, without our having any vent from exportation, till the fall of price is ruinous to the interests of farmers, who are never so secure as when the resource of exportation can be easily had recourse to.

  To obviate, as far as is practicable, this enormous evil, all undue protection to agriculture should be gradually withdrawn. The policy which we ought, at this moment of distress to adopt, is to give the monopoly of the home-market to the British grower till corn reaches seventy shillings per quarter. When it has reached seventy shillings, all fixed price and system of averages should be got rid of, and a duty of twenty shillings per quarter on the importation of wheat, and other grain in proportion, might be imposed.

  This change would do but little in protecting us from the effects of abundant crops, but it would be greatly beneficial in preventing an unlimited importation of corn when the ports were opened. Under the payment of a fixed duty corn would be imported only in such quantities as it might be required, and as no one would fear the shutting of the ports, no one would hurry corn to this country till we really wanted it. Against the effects of glut, caused by an unlimited supply from abroad, we should be then amply protected.

  This measure however, although a great improvement on the present corn law, would be very deficient if we proceeded no farther. To establish measures which should at once drive capital from the land would under the present circumstances of the country be rash and hazardous, and therefore I should propose that the duty of twenty shillings should every year be reduced one shilling, until it reached ten shillings. We should also allow a drawback of seven shillings per quarter on the exportation of wheat; and these should be considered as permanent measures.

  A duty of 10s. per quarter, on importation, to which I wish to approach, is, I am sure, rather too high as a countervailing duty for the peculiar taxes which are imposed on the corn grower, over and above those which are imposed on the other classes of producers in the country; but I would rather err on the side of a liberal allowance than of a scanty one; and it is for this reason that I do not propose to allow a drawback quite equal to the duty. As far as the producer of corn was concerned, when the duty had fallen to 10s., the trade would, to him, have all the advantages of a free trade, within the trifling amount of 3s. per quarter. Whenever his crops were abundant, he could be relieved by exportation, after a very moderate fall of price, unless, indeed, the abundance and fall were general in all countries; but, at any rate, the price of his corn would be nearer the general rate of prices of the rest of the world by 20s. or 25s., than it is under the existing regulations, and this alteration would be invaluable to him.

  Before I conclude, it will be proper to notice an objection which is frequently made against freedom of trade in corn, viz., the dependence in which it would place us for an essential article of subsistence on foreign countries. This objection is founded on the supposition that we should be importers of a considerable portion of the quantity which we annually consume.

  In the first place, I differ with those who think that the quantity which we should import would be immense; and, in the second, if it were as large as the objection requires, I can see no danger as likely to arise from it.

  From all the evidence given to the Agricultural Committee, it appears that no very great quantity could be obtained from abroad, without causing1 a considerable increase in the remunerating2 price of corn in foreign countries. In proportion as the quantity required came from the interior of Poland and Germany, the cost would be greatly increased by the expenses of land carriage. To raise a larger supply, too, those countries would be obliged to have recourse to an inferior quality of land, and as it is the cost of raising corn on the worst soils in cultivation requiring the heaviest charges, which regulates the price of all the corn of a country, there could not be a great additional quantity produced, without a rise in the price necessary to remunerate the foreign grower. In proportion as the price rose abroad, it would become advantageous to cultivate poorer lands at home; and, therefore, there3 is every probability that, under the freest state of demand, we should not be importers of any very large quantity.

  But suppose the case to be otherwise, what danger should we incur from our dependence, as it is called, on foreign countries for a considerable portion of our food? If our demand was constant and uniform, which, under such a system, it would undoubtedly be, a considerable quantity of corn must be grown abroad expressly for our market. It would be more the interest, if possible, of the countries so growing corn for our use, to oppose no obstacles to its reaching us, than it would be ours to receive it.

  Let us look attentively at what is passing in this country before our eyes. Do we not see the effects of a small excess of quantity on the price of corn? What would be the glut, if England habitually raised a considerable additional quantity for foreign consumption? Should we be willing to expose our farmers and landlords to the ruin which would overwhelm them if we voluntarily deprived them of the foreign market, even in case of war? I am sure we should not. Whatever allowance we may make for the feelings of enmity, and for the desire which we might have to inflict suffering on our foe, by depriving him of part of his usual supply of food, I am sure that at such a price as it must be inflicted, in the case which I am supposing, we should forbear to exercise such a power. If such would be our policy, so would it also be that of other countries in the same circumstances; and I am fully persuaded that we should never suffer from being deprived of the quantity of food for which we uniformly depended on importation.

  All our reasoning on this subject leads to the same conclusion, that we should, with as little delay as possible, consistently with a due regard to temporary interests, establish what may be called a substantially free trade in corn. The interests of the farmer, consumer, and capitalist, would all be promoted by such a measure; and as far as steady prices and the regular receipt of rents is more advantageous to the landlord than fluctuating prices and irregular receipt of rents, I am sure his interest well understood would lead to the same conclusion; although I am willing to admit, that the average money-rents, to which he would be entitled if his tenants could fulfil their contracts, would be higher under a system of restricted trade.

  [1 ]Eds. 1–2 contain here in addition ‘yielding the same,’.

  [* ]Report, Agricultural Committee, 1821, page 338.3

  [2 ]Eds. 1–2 ‘in’ instead of ‘on’.

  [1 ]ib. p. 37.

  [2 ]ib. pp. 219–20.

  [1 ]Eds. 1–2 ‘now is’.

  [1 ]Eds. 1–2 do not contain ‘should’.

  [1 ]Eds. 1–2 ‘is’ in place of ‘are’.

  [1 ]Eds. 1–2 ‘its relative value’.

  [1 ]Eds. 1–2 ‘also, equal to the tax’ in place of ‘of equal amount,’.

  [1 ]Eds. 1–2 ‘in the way of’ in place of ‘to’.

  [2 ]Eds. 1–2 ‘the same’ in place of ‘a’.

  [3 ]Eds. 1–2 contain here in addition ‘, as that’.

  [1 ]Eds. 1–2 have ‘both’ here, instead of four words later.

  [2 ]Eds. 1–2 ‘we’ in place of ‘I’.

  [* ]With 4l. 2s. in bank notes any one could purchase precisely the same quantity of commodities as with the gold in 3l. 17s. 10½d.; the object of the plan was to make 3l. 17s. 10½d. in bank notes, as valuable as 3l. 17s. 10½d. in gold. To effect this object, could it have been necessary, could it indeed have been possible, to lower the value of goods more than 5 per cent., if the value of gold had not been raised?

  [1 ]Eds. 1–2 ‘against’ in place of ‘to’.

  [2 ]Eds. 1–2 ‘has’.

  [1 ]‘Second Report’ from the Lords’ Committee on the Resumption of Cash Payments, 12 May 1819, Appendix A. 8, p. 314; in Parliamentary Papers, 1819, vol. iii.

  [* ]See Appendix, A.

  [1 ]Tooke actually said ‘About six per cent.’, according to the ‘Minutes of Evidence’ before the Agricultural Committee of 1821, p. 296.

  [1 ]The ‘all-devouring monster’ is Cobbett’s description of the fund-holder. (Cobbett’s Weekly Political Register, 2 March 1822, p. 517.)

  [1 ]At the Bank Court of Proprietors held on 21 March 1822, in reply to criticisms of the Bank by Alderman Heygate, ‘The Governor remarked, that he happened accidentally to have a paper in his hand, which would, he trusted, convince the hon. alderman, that if the Bank had erred, it was not on the side of a reduction of the circulating medium; for upon looking at the amount of their issues, he found, that on the 9th of March, 1822, their issues exceeded, by the sum of 3,859,000 l., those of the same date in the preceding year (March 9, 1821), and that the latter exceeded the issues of the 9th of March, 1820, by the sum of 3,444,000 l. (Hear.) It was therefore quite clear, that the repayment of the Government debt called for in July, 1819, did not induce the Bank to diminish their issues, for they had been increasing them in the years which had since followed.’ (The Times, 22 March 1822.)

  [1 ]This argument was used by J. A. Stuart Wortley, M.P. for Yorkshire, in presenting a petition for the relief of agricultural distress on 1 April 1822 (Hansard, N.S., VI, 1402). Huskisson supported him with a similar argument (ib. 1405).

  [2 ]Ed. 1 ‘is’ in place of ‘ought to be’.

  [3 ]In place of the last four lines ed. 1 reads ‘A low rate of interest is a symptom of a low rate of profits. But, as’ etc. Eds. 2–3 are uniform with ed. 4, except that they open the second sentence with ‘But, as’ in place of ‘As’.

  [* ]The Bank are now in advance1 many millions to the Government on Exchequer Bills at three per cent., besides the fixed advance of their capital, also at three per cent.; which latter they are, by their charter, obliged to lend at that rate of interest.

  [1 ]Section II.

  [1 ]Ed. 1 ‘saving;’.

  [1 ]See Brougham’s speech on the distressed state of the country, ii Feb. 1822 (Hansard, N.S., VI, 240 and 243–4); and cp. Ricardo’s speech on the same occasion, below, V, 124–5.

  [2 ]See quotations given in Principles, above, I, 183–4.

  [3 ]Above, p. 210.

  [1 ]Ed. 1 misprints ‘imported’ for ‘imposed’.

  [1 ]From here ed. 1 reads ‘higher in the importing, than in the exporting, country; and before any corn can be exported from the country which imposes the protecting duty, corn must fall from its usual’ etc.

  [2 ]See the evidence of George Webb Hall, Secretary of the Board of Agriculture, before the Agricultural Committee of 1821, ‘Minutes of Evidence’, pp. 164–5.

  [1 ]On the contradiction between the arguments and recommendations of this Report, see Ricardo’s speech of 3 April 1822, below, V, 151–2.

  [1 ]‘1822. Report from the Select Committee appointed to inquire into the allegations of the Several Petitions presented to the House in the last and present Sessions of Parliament, complaining of the distressed State of the Agriculture of the United Kingdom’, 1 April 1822, p. 8; in Parliamentary Papers, 1822, vol. v. The italics are Ricardo’s.

  [1 ]Eds. 1–2 ‘of the cloth even,’.

  [1 ]Professor John Leslie described his ‘process of artificial congelation’ in the Supplement to the Encyclopaedia Britannica, vol. iii (article ‘Cold’) published in 1818.

  [2 ]Agricultural Report of 1822, p. 6. The italics are Ricardo’s.

  [3 ]The Agricultural Report of 1821.

  [1 ]The Report reads ‘prices’.

  [1 ]The Earl of Liverpool.

  [2 ]Ed. 1 misprints ‘agree’.

  [3 ]In the Lords’ debate on the Corn Bill (Hansard, XXX, 190–1).

  [4 ]Agricultural Report, 1821, p. 23.

  [1 ]Eds. 1–2 ‘the whole’ in place of ‘all’.

  [2 ]Ricardo’s italics.

  [1 ]This quotation is from the Agricultural Report of 1821, p. 16; for the corresponding recommendation in the Agricultural Report of 1822, see above, p. 245.

  [2 ]Agricultural Report, 1822, p. 4.

  [1 ]Ed. 1 ‘producer,’ clearly an error.

  [1 ]The allusion is to Lord John Russell’s speech in the House of Commons, on 21 February 1822, advocating a reduction of taxes as the only means of relieving the distress: ‘It was idle to say that heavy taxes were not a cause of distress. There was a manifest absurdity in the assertion. With just as much reason might it be said, that if a carriage broke down with the horses under it, it would be wrong to disengage them from the harness. If such a case occurred, and, as might happen, if the persons who came to assist were beginning to remove the harness by which the horses were kept down, some philosopher were to come up and say, “Oh, the removal of the harness is not the way to relieve them; they have been thrown down by a stone in the road, or some such cause; but the removal of the harness will do no good”—if such language were addressed to the by-standers, they would, he had no doubt, treat the advice with contempt, and proceed in the only effectual way by taking off the harness. So it was with taxation: it pressed and weighted down the people in every part of the country, and the only way in which they could be effectually assisted was, by a removal of part, at least, of the weight.’ (Hansard, N.S., VI, 574–5.)

  [1 ]‘Minutes of Evidence’, pp. 224–32.

  [* ]that cause it will have been seen I ascribe a fall of 10 per cent.2

  [1 ]Agricultural Report, 1821, ‘Minutes of Evidence’, p. 217.

  [2 ]The table is based on accounts Nos. 17 and 19, of the Appendix to the Agricultural Report of 1821.

  [1 ]From here to the end of the paragraph ed. i reads ‘of the quantity sold in Mark Lane, in the Appendix*, which I have every reason to believe correct.’ Cp. the corresponding changes made in Appendix B in eds. 2–4.

  [* ]See Appendix B.

  [* ]The whole amount of taxes paid to the public creditor and sinking fund, is 36 millions; suppose the other fixed charges to be four millions, then the whole taxation on which the altered value of money has operated, is 40 millions. I estimate the increase 10 per cent, or four millions, which falls on all classes,—landlords, merchants, manufacturers, labourers, and, though last not least,—stockholders.

  [1 ]Ed. 1 does not contain ‘causing’.

  [2 ]Ed. 1 reads ‘growing’ in place of ‘remunerating’.

  [3 ]Misprinted ‘here’ in eds. 3–4.

  [* ]Report, Agricultural Committee, 1821, page 338.3

  [* ]The Bank are now in advance1 many millions to the Government on Exchequer Bills at three per cent., besides the fixed advance of their capital, also at three per cent.; which latter they are, by their charter, obliged to lend at that rate of interest.

  [* ]that cause it will have been seen I ascribe a fall of 10 per cent.2

  [3]‘Report from the Select Committee, to whom the Several Petitions Complaining of the Depressed State of the Agriculture of the United Kingdom, were Referred’, 18 June 1821; in Parliamentary Papers, 1821, vol. ix.

  [1]Should be ‘to advance’; see, for the proposed advance, below, V, 129, 133.

  [2]Above, p. 228.

• Back to Top

  13: Letter from Ricardo to Malthus (July 1811)

  David Ricardo, 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. Chapter: 16.: ricardo to malthus 2[Reply to 15.—Answered by 17]

  Accessed from oll.libertyfund.org/title/207/59199 on 2010-02-03

  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.

  ---

  16.

  ricardo to malthus 2
  [Reply to 15.—Answered by 17]

  Dear Sir

  I have been so much engaged since I had the pleasure of receiving your letter that I have not had an opportunity of answering it till this evening.

  The information which you are desirous of obtaining respecting the premium on bills in Jamaica from the year 1808 to the present period, I will endeavor to procure, but, as these transactions all take place in Jamaica, and as the merchants here are frequently not acquainted with the prices at which the bills remitted to them are negociated, I am not sure that I shall be successful.

  I very much regret that there is so little probability of our finally agreeing on the subject which has lately engaged our attention. The definition which you give of the word redundant, as applied to the currency, is not satisfactory to me. Though it should be allowed that the rise in the price of one commodity, in the case of a scarcity of corn, should be accompanied with a fall in the prices of all others, why should a redundancy of currency be impossible under such circumstances? The currency must, I apprehend, be considered as a whole and as such must be compared with the whole of the commodities which it circulates. If then it be in a greater proportion to commodities after than before the scarce harvest, whilst no such alteration has taken place in the proportions between money and commodities abroad, it appears to me that no expression can more correctly describe such a state of things than a “relative redundancy of currency”. Under these circumstances not only money but every other commodity would become comparatively cheap as compared with corn, and would therefore be exported in return for the corn which would be in demand in this country. By relative redundance then I mean, relative cheapness, and the exportation of the commodity I deem, in all ordinary cases, the proof of such cheapness. Indeed from one who allows that the amount of money employed in any country is regulated by its value, and might, therefore, be comparatively redundant though it consisted only of a million, or deficient though it amounted to 100 millions, I should not have expected any difference of opinion on the comparative cheapness of money being the only satisfactory proof of its redundance.1 If however I thought that the difference between us was as to the correct use of a word, I should immediately yield the point in dispute, but I am persuaded that we do not agree in the principle. You are of opinion that a bad harvest will raise the price of corn, but will lower in some degree the prices of other commodities. Whether it would or would not do so is not material; but if your opinion is correct then I say there would be no exportation of money because money would not be the cheapest exportable commodity. If before the deficient harvest money was at the same value in any two countries, that is to say all their exportable commodities without exception were at the same prices in both, then, according to your view of the question, after the scarcity the prices of all commodities would fall in the country where such scarcity occurred. Whilst then the prices were unequal in the two countries commodities only would be exported in exchange for corn, and there would be no question between us, because we differ as to the cause of the exportation of money.1 You have indeed said that there may be a glut of commodities in the foreign market.1 What! a glut of commodities with a dearer price! impossible,—these two circumstances are incompatible. If the price of any commodity had been £20 in both countries and in consequence of the bad harvest it had been lowered to £15 in one of them, there could not be a glut of that commodity in the other country till it had there also fallen to £15.2 Not only must the price of one commodity fall in the foreign market, but the prices of all (because you suppose them all to have fallen in England) before money could be exported in exchange for corn, and then I would allow that money would be exported, but even then it would be so only because it was more cheap on the whole, as compared with commodities, in the exporting country, and this I contend is the proof of its relative redundance.3

  You maintain that money is rendered cheap by a bad harvest as compared with corn only, but with all other commodities it is dearer than before,—and then what appears to me very inconsistent you insist4 that this commodity thus rendered scarce and dear will be exported, though before it had increased in value, it had no tendency to leave us, whilst too there are commodities which have undergone an opposite change, which from being dearer have become cheaper, and which will nevertheless be obstinately retained by us. This is a mode of reasoning which I cannot reconcile.

  With respect to the other point, namely, that the exchange accurately measures the depreciation of the currency, I cannot but humbly retain that opinion notwithstanding the high authorities against1 me. I do not mean to contend that a convulsed state of the exchange, such as would be caused by a subsidy granted to a foreign power, would accurately measure the value of the currency, because a demand for bills arising from such a cause would not be in consequence of the natural commerce of the country. Such a demand would therefore have the effect of forcing the exports of commodities by means of the bounty which the exchange would afford. After the subsidy was paid the exchange would again accurately express the value of the currency. The same effects would follow, as in the case of a subsidy, from the foreign expenditure of Government. These have a natural tendency to create an unfavourable exchange, yet if the demand for bills is regular it is surprising how this bounty on exportation will be reduced by the competition amongst the exporters of commodities. I am of opinion that in the ordinary course of affairs, if from any of the circumstances so often mentioned, there should be a slight alteration in the value of the currencies of any two countries it will speedily be communicated to the exchange and if such a state of things should permanently continue the exchange has no tendency to correct itself. The fact however appears to be that there is no degree of permanence in the proportions between the currencies and the commodities of nations,—they are subject to constant fluctuations always approaching an absolute level but never really finding it. I hope I have not wearied you with the defence which I have endeavored to make for the opinions which I have imbibed. I assure you that I am not obstinately attached to any system but am ready to relinquish any views I may have taken as soon as I am satisfied that they are incorrect. I shall not fail attentively to consider the chapters in Sir J. Steuart’s work which you have mentioned. I hope before the summer is over to pay you a visit at Hertford.

  I am Dear Sir Yours very sincerely

  David Ricardo

  New Grove Mile end 17 ^th. July 1811

  [2 ]Addressed: ‘Revḍ T. R. Malthus / E.I. Coll: / Hertford’; franked by Richard Sharp ‘July eighteen 1811’.
  
  MS. at Albury (as printed in the text); also a draft, incomplete and undated, in R.P. (the main variants are given in footnotes).—Letters to Malthus, VII.

  [1 ]In place of the first part of this paragraph the draft reads: ‘I very much fear that we shall not finally agree on the point which we have lately discussed. I am not satisfied with your definition of the word redundant as applied to the currency, because as the prices of commodities are at all times varying from different causes it might happen that a very decided addition to the currency of England (and to that of England only) might be accompanied with a fall in the price of some few commodities, and yet, I think, you would not hesitate to admit that under such circumstances there would be a real redundancy of currency. I cannot help thinking that a redundant currency may be called that which from any causes whatever is increased in relative proportion to the commodities which it circulates, (whether it be really increased or diminished in amount) whilst no such alteration in the relative amount of money and commodities had taken place in other countries. The exportation of money is, in my opinion the proof of its comparative abundance. I should not think it incorrect to say that if France had only ¾ of an average crop of wheat, and England had only ½ an average crop, and in consequence wheat bore a better price in England than in France, that wheat was exported from France to England because it was comparatively redundant. If however I should be wrong in so using the term as applied to wheat I can have no doubt that it would be correct as applied to money, because the amount of money employed in any country is regulated by its value and might therefore be comparatively redundant though it consisted only of a million, or deficient though its amount exceeded 100 millions.’

  [1 ]In place of the last three sentences the draft reads: ‘Whether it would or would not do so, is not material to my argument; I will therefore for the present admit that it would. If then, before the bad harvest, the prices of commodities were precisely equal in any two countries, after it, such prices must be lower in the country having the bad harvest than in the other, and consequently commodities will be exported in exchange for corn imported. I ask you to explain on what principle 17 July 1811 money can be exported whilst goods can be more advantageously employed to procure the corn.’

  [1 ]In Edinburgh Review, Feb. 1811, p. 345, quoted above, III, 101.

  [2 ]Draft reads ‘to £15, or nearly to £15.’

  [3 ]In place of this sentence the draft reads: ‘The fact of money being exported is admitted by both, we differ as to the cause. I say that its exportation is not the necessary consequence of the bad harvest; because that money is rendered cheap though frequently accompanying a bad harvest is not a necessary result.—Money then if exported is so because it is rendered not only cheap, but cheaper than any other exportable commodity, and this I contend is the proof of its relative redundancy.’

  [4 ]From here to the end of the paragraph the draft reads: ‘that this commodity which when comparatively cheaper we would not part with nor would the foreign country accept of it, now that is rendered dearer will have a tendency to leave us, whilst too there are commodities which have undergone quite an opposite change, which from being dearer have become cheaper. This is a mode of reasoning which I in vain endeavor to reconcile.’

  [1 ]The sheet of the draft ends at this point; the remainder of it is wanting.

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  14: Letter from Ricardo to McCulloch (29 March 1820)

  David Ricardo, 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. Chapter: 359.: ricardo to mcculloch1[Reply to 358.—Answered by 360]

  Accessed from oll.libertyfund.org/title/211/60665 on 2010-02-03

  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.

  ---

  359.

  ricardo to m^cculloch1
  [Reply to 358.—Answered by 360]

  London 29 March 1820

  My dear Sir

  I received with great pleasure your kind letter of the 19^th inst., and I take advantage of this period of inaction to enter into a little discussion with you on some of the points contained in your article on taxation, in the last number of the Edinb^gh. Review,2 knowing, as I do, that we have both the same object in view, namely the establishment of truth; and therefore I feel no more hesitation in making you acquainted with my sentiments when they differ from your own, than when we are fully agreed. In the article in question, you have, with your usual force and ability, advocated the great truths of the science of Political Economy, which you have yourself before so satisfactorily and so clearly explained; but there are some minor points on which you touch that I request you to reconsider, and if you detect any error in the reasoning by which I support an opinion contrary to yours, have the goodness to communicate it to me, that I may examine it with that care and attention to which I am sure it will be entitled.

  The labouring classes in all countries have the very greatest interest in keeping the supply of labour rather under the demand, but they are then most happy when the funds for the support of labour, and consequently the demand for it increase with the greatest rapidity, and their means for supporting their families and contracting of marriages is at the highest level to which it can be raised. It is only because taxation interferes with the accumulation of capital, and diminishes the demand for labour, that it is injurious to the working classes. Sometimes it only retards the rate of accumulation, at other times it arrests it altogether, and on some occasions the taxes by being supplied at the expence of capital itself actually diminish the means of the country to employ the same quantity of labour as before. Wages may be regulated, and may continue for a series of years, on a scale which shall allow the population regularly to increase from year to year in such a proportion as shall double it in 25 years. Under other circumstances this power of doubling may not be possible in less than 50, 100, or 200 years—or population may be so little stimulated by ample wages as to increase at the slowest rate—or it may even go in a retrograde direction. Wages being regulated according to some one of these states may or may not be affected most injuriously to the working classes by taxation.

  Suppose them to be in that state of abundance as to encourage the doubling of population in 25 years, and suppose a tax to be laid directly on wages, or on the necessaries on which wages are expended, of 20 pc^t., what effect will such a tax have on the real comforts of the labourers?1 None whatever, I answer, unless it diminishes the demand for labour, because it will be immediately transferred to the employers of labour, and will consequently diminish the profits of stock. Suppose wages not to be increased after the tax, every body could employ the same quantity of labour as before, and to that demand would be added the additional demand of government for labour, who cannot expend these taxes without employing soldiers, sailors and many other labourers. This of itself would soon raise the price of labour, and transfer the burden to the employer of labour. If I before employed 10 gardeners, after wages have thus risen, I may not be able with the same funds as before to employ more than 8, and thus the tax of 20 pc^t. falls on me—no more men are employed, but two men are dismissed from my service, and are taken into the service of Government. The rate of accumulation goes on as before, and no other effect is produced than what would have been produced if a tax of an equal amount had been directly laid on me. Whatever may previously have been the rate of wages, the tax obviously never deteriorates the situation of the labourer unless it diminishes the demand for labour, by affecting the rate of accumulation. Taxes will generally affect the rate of accumulation, and therefore they are generally injurious to the labourer, but when we are carrying on an expensive war and it is necessary to raise large funds within the year, either by loan, or by taxes equal in amount to such loan, the former will I think be most injurious to the labourer, because it will more materially affect the accumulation of capital.1 If an individual is called upon to pay an annual tax of £100 p^r. Ann^m. instead of a sum of £2000 for once only, he will not make so great an effort to save, because he is seldom sensible that a tax of 100 p^r. Ann^m. is equivalent in value to £2000,—and therefore a system of loans is more destructive to the national capital than a system of heavy taxation to an equal amount.

  I must quickly dispatch my remaining observations. Page 157 The distress of the poor is considered as synonymous with diminished resources. Suppose a nation to increase its capital annually at the rate of 2 pc^t. but that at the same time its population increases at the rate of 2½ pc^t. is it not clear that there will be annually new demands on its charitable funds? Its annual net revenue, and with it the means of expenditure and enjoyment to the higher classes of society would increase but would be accompanied with a diminution of happiness, if not positive misery to the great mass of the people.

  The employment of machinery I think never diminishes the demand for labour—it is never a cause of a fall in the price of labour, but the effect of its rise. If one man erected a steam engine because it was just cheaper to employ the engine than human labour, and if this were followed by a fall in the price of labour it would be no other man’s interest to prefer also the use of the machine. Loans, then, if made from capital, will be supplied from circulating and not fixed capital particularly if the expenditure of government, even with a slight diminution of capital, should as it generally does increase the demand for people. Fixed capital such as buildings, machinery &c^a. cannot furnish the means of loans—they, after they are once erected must be employed as capital or thrown by as useless.1

  You lead the reader to infer that the great discoveries and improvements made by us in machinery and manufactures have been particularly favorable to this country.1 Excepting for an inconsiderable portion of time are they not equally advantageous to every other country, even if they are retained in this country only?

  You say that the corn laws have the same effect as if a tax of 24 millions and a half were levied from the consumers of corn for the public expenditure.2 I should add, provided the 24 millions and a half received by the landholders be all expended as revenue, and no part be added to capital.

  Perhaps you may think me fastidiously minute in my observations—I think so myself, but my object is to ascertain exactly whether our opinions coincide or differ. The general reader would perhaps prefer that his attention should not be distracted by the consideration of such niceties and it may not be material that it should. It is however important to my theory of providing for a heavy expenditure when it arises, by taxes within the year in preference to loans,3 that I should shew that it is more favorable to the accumulation of capital, to the demand for labour, and to the general happiness.—The single man amongst the labouring class may bear and often does bear his portion of taxation, but the married labourers has the means of repaying himself by commanding increased wages, unless the amount of the tax is so heavy, however laid, that it disturbs the rate of accumulation.

  You must not have the least fear of my compromising my opinion on the Corn laws, I have already spoken out, on that subject, and shall again, if I can muster up courage to speak at all. You know however that I have always maintained that the growers of corn in this country should be protected from any peculiar burdens to which they may be subject, but then they should shew that they are so burthened—the fact I believe is that every other trade is taxed in a proportion greater than the growth of corn. My principle is that we may impose restrictions to restore things to their natural relation, but never to destroy it.

  I have lately been at Mr. Malthus for a couple of days—he shewed me a chapter of his new work, perhaps that in which his difference with me is most particularly noticed.1 Iaman interested judge and my decision must be received accordingly. To me it appeared to offer no objections which might not be easily disposed of.

  After reading this long letter I am strongly tempted to commit it to the flames—yet I am so doubtful whether a new attempt to convey my opinions to you will be more successful that I think it most prudent to let it go with all its imperfections. In you I know I have a partial judge ever inclined to view my errors and omissions with indulgence. I remain with great esteem

  Faithfully Yours

  David Ricardo2

  [1 ]MS in British Museum.—Letters to McCulloch, XII.

  [2 ]January 1820.

  [1 ]McCulloch’s answer (Edinburgh Review, Jan. 1820, pp. 160–1) is that the labourer ‘is unable to raise his wages in proportion to the increased price of the commodities he consumes; and for this obvious reason, that, while the competition for employment, or the number of labourers continues undiminished, the demand for their services, however much it may be lessened, cannot be increased by the imposition of the tax.’

  [1 ]Cp. the same argument above, I, 220–2.

  [1 ]McCulloch argues that ‘the factitious and unnatural prosperity’ during the war was partly due to the loans, because ‘the capital lent to the State would, if it had remained in the hands of the subscribers, have...been chiefly devoted to the increase of fixed capital, or machinery. But, although it would have thus contributed to the lasting benefit of the country, it would not have occasioned the same immediate demand for labour.’ He adds: ‘The fixed capital invested in a machine, must always displace a considerably greater quantity of circulating capital,—for otherwise there could be no motive to its erection; and hence its first effect is to sink, rather than increase, the rate of wages.’ Edinburgh Review, Jan. 1820, pp. 170–1. This latter principle is taken from Barton (Observations on the Condition of the Labouring Classes, 1817, p. 16, but cp. pp. 55–6) of whose pamphlet the article is nominally a review.

  [1 ]Edinburgh Review, Jan. 1820, pp. 168–9.

  [2 ]ib. p. 180.

  [3 ]See above, IV, 185 ff.

  [1 ]Probably Chapter III, ‘Of the Rent of Land’, of Malthus’s Principles of Political Economy.

  [2 ]In Letters to McCulloch, pp. 60–61, there is printed a memorandum, described as being in Ricardo’s handwriting, which was found in a copy of the 1st ed. of Ricardo’s Principles in the library at Gatcombe. This memorandum touches upon some of the points discussed in this letter. The handwriting of the MS, however, though similar in general appearance to that of Ricardo’s, differs in essential details and is unlikely to be his.

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  15: Letter from Ricardo to Francis Place (2 September 1821)

  David Ricardo, The Works and Correspondence of David Ricardo, ed. Piero Sraffa with the Collaboration of M.H. Dobb (Indianapolis: Liberty Fund, 2005). Vol. 9 Letters 1821-1823. Chapter: 451.: ricardo to place1[Reply to 450a]

  Accessed from oll.libertyfund.org/title/213/61345 on 2010-02-03

  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.

  ---

  451.

  ricardo to place1
  [Reply to 450a]

  Gatcomb Park, Minchinhampton 9 Sept 1821

  Dear Sir

  I have gone through the whole of your MS2 with the greatest attention, and have great pleasure in saying that in my humble judgment it is a complete and satisfactory answer to all Mr. Godwins objections to the theory of Population, as explained by Mr. Malthus. I have no doubt but that its publication will bring you great credit and fame, and will be deemed a proof of your being possessed of a good stock of industry and talents. I hope you will be able to make such arrangements as that it may speedily appear in print. To take off a little of the value of my praise I must candidly confess that I am not very familiar with calculations concerning births, marriages and deaths, and therefore am entitled to be considered only in the light of an ordinary reader, paying great attention to the subject before him.

  In looking over the paper of my notes, made during the time I was perusing your MS, I observe that there are some parts in which I do not quite agree with you and which I shall now, without any apology, submit for your re-consideration. First, in the latter part of the first chapter it is I think inferred that under a system of equality population wouldpress with more force against the means of subsistence than it now does. This I do not think is true. I believe, that under such a system, mankind would increase much faster than it now does, but so would food also. A larger proportion of the whole capital of the country would be employed in the production of food-necessaries, and a less proportion in the production of luxuries, and thus we might go on, even with an increase of capital, without any increased difficulty, till that distant time, which because of its distance, Mr. Malthus says should not damp our ardour. Whether this would be a more happy state of society is another question which it is not now necessary to discuss. It should always be remembered that we are not forcing the production of food to the extent of our power. Without one shilling more capital, without any additional labour being employed in the country, we might probably increase the quantity of food 25 pc. On this foundation are raised all Mr. Owen’s speculations.—

  2. Chap. 3 Section 1 Page 4.1 Is the passage I have marked quite fair towards Mr. Godwin. “I have proved by general reasoning” says Mr. Godwin “that so and so cannot be true. I will now shew you by an appeal to facts that I am correct, but if my facts do not afford the evidence which I think they do my general reasoning will still be conclusive.” You have shewn, and may shew, that his general reasoning is defective, but I do not see the justice of the charge of his pretending to be thought right “whether he is so or not—whether the thing he asserts be possible or impossible”.

  3. Page 282 Your table supposes the increase of population to be the same the last year that it is the first—surely this cannot be right. Population does not indeed increase in the same steady geometrical ratio that money does, which accumulates at compound interest, but still it increases at some rate which may be called geometrical. Your table is constructed on a principle of arithmetical increase.

  4 Page 291 For the same reason as that just given I object to halving the increase in the 10 years to find out the population of 1795.

  5 Chap. 3 Section 2 Page 42 If a population of 3 millions increases to 4,500,000 in 55 years, by the addition of one child to every 8 marriages, it will increase to 6,750,000 in 110 years and consequently will double in a smaller period than 110 years.

  “If ⅛ of child to a marriage &c. &c. &c.” the answer 37 cannot be correct, for population increases in a geometrical ratio. If £1 p^r. Ann^m. at 5 pc. accumulates at compound interest for 20 years it will amount to £33, but we should be wrong therefore to infer that if £2 p^r. Ann^m. accumulated for half the period that would also amount to £33, it would in fact only amount to £25.

  6. Chap 3 Secⁿ. 3 Page 33 You remark the absurdity of Mr. Godwins thinking it necessary that there should be 8 births to a marriage in America in order to double the population in 25 years, and that it is inconsistent with his own data, but I do not think you dwell enough on this important part of the difference between you.

  7 Chap 6 Secⁿ. 1 Page 24 Your remarks on the word “right” as used by Mr. Malthus5 is strictly correct perhaps, but you should in fairness recollect in what sense he meant to use it. “The law professes” Mr. Malthus might say “to give every man a right to the enjoyment of his own property, but in effect the right is withholden from him if at the same time it gives a contrary and inconsistent right to another man to be maintained out of that property[”]. The labour of a poor man is his property and therefore by analogy he has a right to all that it will procure him, but it is inconsistent and inexpedient to give him a right to any part of my property if he do not obtain it, by my freely giving it to him in exchange for his labour. By “right” and “law of nature” Mr. Malthus clearly means, “moral right” “utility” “the good of the whole” or some equivalent expression. I am not defending the accuracy of Mr. Malthus’s language on this occasion—I know it is not strictly correct, I as well as you am a disciple of the Bentham and Mill school, but his meaning cannot be mistaken.

  8. Page 51 same Chap. I am not satisfied with the reply here given to Mr. Malthus’s proposal.2 If men depended wholly on their own exertions for support, a state of society might and I think would exist, in which it could not be [“]successfully shewn that no labourer and very few artizans have a prospect of being able to maintain a family.[”]3

  9. Page 84 You agree with Mr. Malthus that his plan if adopted would lower the poor rates, but you say it would reduce the poor to the very lowest state possible. Why? not if it raised wages, and this is what Mr. Malthus expects from it. You are bound to shew, that wages will not be raised, when a portion of the money now paid for labour, under another name, is withdrawn, and transferred to the employers of labour. You say that private benevolence would degrade the poor man more than the aid he receives, from the poor rates. I believe otherwise. Mr. Malthus be it remembered does not propose the abolition of the poor laws as a measure of relief to the rich, but as one of relief to the poor themselves. Is it not a little inconsistent to say, as you appear to me to say, that the poor laws have degraded the poor of this country, and yet warn us against their gradual abolition for fear of degrading our people to the level of the degradation of the poor in countries where there are no poor laws.

  Chap. 6 Sect. 2 Page 41 If it be a general though erroneous belief in a country that to increase the population be a meritorious act, is it not likely that fewer will be restrained from marriage in such a country, than in another where more just notions of what is really meritorious, and what is really pernicious, prevail? To say that “God never sends mouths but he sends meat” is not so different, as at first sight appears, to saying “that to raise up subjects for his king and country is a meritorious act.[”]

  The accusations you bring against the rich are many of them just, but those concerning “the law of settlement” “the payment of wages from the poor rates” “the heavy taxes laid on the necessaries of life” are I think all unjust—the last has not the effect which the poor think they have, and the two former are the effects of a bad system which the rich do not, on account of any benefit to themselves, uphold. I cannot doubt that the original establishment of the poor laws proceeded from benevolent but mistaken views, and I think it hurts the cause which you so well support to cast blame where it is not deserved. As a matter of fact it may be true that the poor make these complaints, but you appear to me too much to countenance them.

  Chap. 6. Sec. 2 Page 3.1 You quote from Malthus and afterwards say “Thus he2 is held out as a seditious grumbler if not a blasphemer without any sufficient cause for his grumbling.” This accusation is made against Mr. Malthus, and is wholly unfounded. Does he say he has no cause for grumbling? quite the contrary he says he has, but that he mistakes the cause of his distress. This is not fair criticism. That which follows in this page &c. is excellent. I have read your defence of the working class with great interest. I believe you have done them but justice, and that they are often cruelly calumniated. This part of your work will do much good, if you abate a little of the asperity with which the rich are handled. I find no fault with the severity of the passages. I complain of their injustice. You say that the object of the rich is to keep down the recompence to the labourer to the lowest rate at which they can be supported, and your proof is that their allottment from the rates is regulated by such lowest rate. It is idle to complain of those who employ labourers endeavoring to get them to do their work at low wages—this is true of all employers of labourers, not of the rich particularly; and as for the niggardly allowance from the rates what would you have them do? Would it not be worse if every man wanting work could be sure of being liberally relieved. The sincerest friends of the poor think, perhaps erroneously, that the situation of the poor would be improved if the pittance of which you complain were withdrawn from them altogether. Is it just to say (Page 123 ) “Having got him in that state, the next thing was to reduce him as low as possible”. Magistrates &c. are often ignorant—the consequences of their acts may have been injurious to the working classes, but that they designed their misery without any prospect of benefit to themselves is inconceivable. Point out if you can what they gained by it. Accuse the individual judge who uttered the words which you quote,1 he deserves to be held up to public odium, but do not charge such offences too indiscriminately. Indeed in candor you ought to mention the judge’s name and the case to which you allude.

  Page 142 I agree that the two things you recommend should be done, but these would be very insufficient as measures of relief to the labouring classes. They are as injurious to the rich as to the poor.

  Page 153 You acknowledge, that to delay marriage, and to prevent too many being born, are the only efficient remedies for the evils which the poor suffer. Mr. Malthus proposes the gradual abolition of the poor laws as a means to accelerate this desirable end,—you no where I think shew that the means would not be efficacious.

  Chap. 8. Page 8 last section.4 May we not say that the exertions of the middling rank in this country, of which you speak with just praise, have been in part the effect of their having a better government than other countries. The liberty of the press—the public discussion of all measures of importance in Parliament, may have produced some effects on the minds and dispositions of the middling class.

  Chap 9 p 11 Mill does not shew the effect that would be produced by spade husbandry, but the effect that would follow from an increasing people, which should constantly require an additional proportion of the population to be employed in husbandry. He would recommend spade husbandry, if it could be shewn that the capital and labour employed in it, yielded more than an equal capital and the same quantity of labour in plough or machinery husbandry.

  If in Ireland the people raised corn with their spades, and could do it economically, no complaint could be justly made against spade husbandry. The term is unfortunately chosen. The evil of which the Irish ought to complain is the small value of the food of the people compared with the value of the other objects of their consumption, and the small desire they have of possessing those other objects. Cheap food is not an evil, but a good, if it be not accompanied with an insensibility to the comforts and decencies of life. Of what consequence is it that I give the value of a years food for a coat if I can with great facility obtain the food? Another great evil is the uncertainty to which the crops of their cheap food is liable, and the bad quality of it as a nutritious food. If it could be easily saved from year to year, or if the nutritious part could be economically extracted and put by for scarce years, the greatest objection against the cheap food of the Irish would fall to the ground.

  Page 3.2 Ireland is in fact rather in the situation of a new than an old country.

  You say3 some think that it is in consequence of there being an increase of people that there is an increase of food. I am one of those. There may be an increase of people without an increase of food, because the same quantity of food may be divided amongst a larger number of people, but there can be no motive for increasing the quantity of food, till there is an effective demand for it, and that can never arise without a previous increase of people. I should say that capital increases first—then the demand for more labourers—then a better condition of the labourer. If the labourer had previously been improvident, and his family was scantily provided with food, there will at once arise an increased demand for food, if otherwise, the people must actually increase before such increased demand. In the one case the people had increased before the increase of capital; and were in wretchedness and poverty—in the other, they increased after the capital, and were always prosperous and happy.

  Page 4.1 You here very properly admit that the misery of the people proceeds from the quantity of food being insufficient for their wants, without any reference to its being raised by the spade, or of its inferior value.

  I have now gone through all my remarks and it is for you to deal with them as you think they may deserve.

  I can have no hesitation in expressing my opinion of your MS to Mr. Murray, which I will do to day or to-morrow. That opinion will not have probably, because it ought not to have, much weight with him. In a day or two you will perhaps call upon him yourself and I shall be happy to hear that it is to come forth under his auspices.

  I am D^r. Sir Yours faithfully

  David Ricardo.

  I send the MS by the Coach which passes through M Hampton this day.

  [1 ]Addressed: ‘Mr. Place / Charing Cross / London’. On the cover, in another hand: ‘Returning the M.S.’
  
  MS in Seligman Library of Columbia University (where are also Place’s comments on this letter, 6 pp., unpublished). I am indebted to Mr G. W. Zinke for acquainting me with its existence and for obtaining a photostat.

  [2 ]Published under the title Illustrations and Proofs of the Principle of Population: including An Examination of the Proposed Remedies of Mr. Malthus, and a Reply to the Objections of Mr. Godwin and Others, by Francis Place, London, Longman, 1822. For Godwin’s attack on Malthus, to which it replies, see above, VIII, 291, n. 3.

  [1 ]p. 41 of the published book.

  [2 ]p. 70.

  [1 ]p. 71.

  [2 ]pp. 75–6.

  [3 ]p. 86.

  [4 ]p. 137.

  [5 ]‘There is one right which man has generally been thought to possess, which I am confident he neither does nor can possess—a right to subsistence when his labour will not fairly purchase it. Our laws indeed say that he has this right, and bind the society to furnish employment and food to those who cannot get them in the regular market; but in so doing they attempt to reverse the laws of nature; and it is in consequence to be expected, not only that they should fail in that object, but that the poor, who were intended to be benefitted, should suffer most cruelly from the inhuman deceit thus practised upon them.’ (Essay on Population, 5th ed., 1817, vol. iii, p. 154.)

  [1 ]pp. 139–40.

  [2 ]‘I should propose a regulation to be made, declaring, that no child born from any marriage, taking place after the expiration of a year from the date of the law, and no illegitimate child born two years from the same date, should ever be entitled to parish assistance.’ (Essay on Population, vol. iii, p. 179.)

  [3 ]‘Mr. Godwin, in reply to this [i.e. Malthus’s proposal], has successfully shown that no labourer’ etc. (Place, p. 140.)

  [4 ]pp. 143–4.

  [1 ]p. 152.

  [1 ]p. 154.

  [2 ]The labouring man.

  [3 ]p. 167.

  [1 ]‘If he [the labouring man] congregated, or made an attempt to congregate, for