Guest Lecturer: David Ricardo talks about gold at $700+!

Guest Lecturer: David Ricardo talks about gold at $700+!

May 14, 2006

For some strange reason, David Ricardo, the great early-19th century British economist, is remembered primarily for his arguments about free trade. Weird. Because Ricardo’s writings are primarily about money. Why? Britain had left the gold standard in 1797 as a result of a financial crisis related to the Napoleonic Wars. (There was a rumor that French soldiers had landed on the shore of Britain, which was true. The small landing party promptly surrendered to a distant group of women tending cows, which they mistook for British soldiers.) In 1809, the pound had been a floating currency (mostly sinking) for over a decade. Ricardo began writing letters to the Morning Chronicle, which turned into the essay we are reading today. Ricardo had made his fortune as a speculator, and in his middle years, devoted himself to putting Britain back on a gold standard. (You can think of him as an early George Soros type.) In 1817 he published a much more detailed work of economic theory, the Principles of Political Economy and Taxation, which remains, in my opinion, one of the most insightful works on the basics of monetary theory ever written. (He makes a few good points about trade as well.) He became a Minister of Parliament in 1819, and led the political process of reestablishing the gold standard in Britain, which was accomplished in 1821. He died in 1823. Mission accomplished!

This essay is very long, but we will reproduce all of it here, since there is plenty more to talk about in coming weeks.

* * *

The High Price of Bullion

by David Ricardo


The High Price of Bullion, a Proof of the Depreciation of Bank


by David Ricardo

London: Printed for John Murray, 32, Fleet-Street; And Sold by

Every Other Bookseller in Town and Country



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 county 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


He is aware that he can add but little to the arguments which

have been so ably urged by Lord King, 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 wil1 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, previously 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


“The quality 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.”

If the quantity of gold and silver in the world employed as

money were 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.”

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 counties 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


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 county 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, were 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


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 inducement 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 compares 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 county. 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

exporting of coin 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, etc. etc. 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, etc. etc. 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, etc. 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.(1*)

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. These are

the means, as I have already explained, by which our currency

endeavours to equalize itself with the currencies of other

counties. 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, 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


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, “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 Thornton: –

“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


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. But Mr Thornton, who has considered this

subject very much at large, supposes 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.

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, 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


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 3 l. 17s. 10 1/2d.

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 100 l. 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 5 l. to discharge my debt will cost me 105 l. If I

purchase cloth here, which, with the expences attending its

exportation, will cost me 106 l. and which will, in Hamburgh,

sell for 100 l. 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 107 l. 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,” 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.

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


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. (3*)

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 county 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 (4*) 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 Locke, 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

considered 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, maintained 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.” The same regulation was revived in 1798, and is now

in force.

For many reasons given by Lord Liverpool, 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 disappear, and

silver become the standard currency.

This may require further explanation. The relative value of

gold and silver in the coins is as 15 9/124 to 1. An ounce of

gold which is coined into 3 l. 17s. 10 1/2d. of gold coin, is

worth, according to the mint regulation, 15 9/124 ounces of

silver,because that weight of silver is also coined into 3 l.

17s. 10 1/2d. 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, nor 3

any individual, would send 15 9/124 ozs. of silver to the mint to

be coined into 3 l. 17s. 10 1/2d. when they could sell that

quantity o£ silver in the market for more than 3 l. 17s. 10 1/2d.

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 9/124 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 3 l. 17s. 10

1/2d. of gold coin, whilst he could sell it, which he could do in

such case, for more than 3 l. 17s. 10 1/2d. 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

14 3/4 ozs. of standard silver, being now in the market of the

same value as 15 1/2 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 3 l. 17s. 10

1/2d. by procuring 15 9/124 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 3 l. 17s. 10 1/2d. of

gold coin.

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 recoinage. 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 previously 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, previously to 1798,

raised the price of gold nor 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 prices of gold and silver

bullion, and on the foreign exchanges, which were formerly caused

by the debasement of the silver coins (5*).

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 pit 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 20/21 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 necessity to

discharge it.

If my debt amount to 1100 florins, and gold have not varied

in value, 100 l. in our pure gold coin will purchase as much

Dutch currency as is necessary to pay my debt. By exporting the

100 l. therefore in coin, or (which is the same thing) paying a

bullion merchant the 100 l. 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


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 county 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 100 l., and

he must therefore export an additional number of such debased

pieces of money, to enable him to pay my debt of 100 l., 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


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, “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, 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 unfavourable 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


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


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, 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. ” 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 rising 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


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

previously to the suspension of cash payments in 1797, the

average price of gold bullion was 3 l. 17s. 7 3/4d. per oz. about

2 3/4d. under the mint price; and for sixteen years previously to

1774, it never was much above 4 l. per oz. It should be

remembered that during these sixteen years our gold coin was

debased by wearing, and it is therefore probable that 4 l. of

such debased money did not weigh as much as the ounce of gold for

which it was exchanged.

Dr A. Smith considers 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, “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.” (6*)

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 3 l. 17s. 7 3/4d. the average price

previously 1 to 1797, to 4 l. 10s. and has been lately as high as

4 l. 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 counties.

The effect is the same as that which would have been produced

from clipping our coins.

If one-fifth 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 56 l. would be the price of a pound of gold, and the

difference between the market and the mint price, between 56 l.

and 46 l. 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 1 l. 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 3 l. 17s. 10

1/2d.; 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, banknotes 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

1 l. 4s. 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.

” It is,” says Mr Thornton, ” 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 3 l. 17s. 10

1/2d. 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, 3 l. 17s. 10 1/2d. in banknotes,

with commodities, we shall then discover the depreciation of the

bank-notes. In every market of the world I am obliged to part

with 4 l. 10s. in bank-notes to purchase the same quantity of

commodities which I can obtain for the gold that is in 3 l. 17s.

10 1/2d. of coin.

It is often asserted, that a guinea is worth at Hamburgh 26

or 28 shillings; 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. (7*)

It is nevertheless true, that the same quantity of silver

will, at Hamburgh, purchase a bill payable in London, in

banknotes, for 26 or 28 shillings. Can there be a more

satisfactory proof of the depreciation of our circulating medium?

It is said, that, if the Restriction-bill were not in force,

every guinea would leave the country.(8*)

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, “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

county, 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

4 l. 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? If the price of a

coat were 3 l. 17s. 10 1/2d. or an ounce of gold, and if at the

same time an ounce of gold would sell for 4 l. 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 Review 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,

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 county.” 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.

It can, I think, no longer be disputed that bank-notes are at

a discount. While the price of gold bullion is 4 l. 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 4

l. 10s. in notes and 4 l. 10s. in gold coin are of the same


An ounce of gold is coined into 3 l. 17s. 10 1/2d.; by

possessing that sum therefore I have an ounce of gold, and would

not give 4 l. 10s. in gold coin, or notes which I could

immediately exchange for 4 l. 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 4 l., 5 l., or 10 l. 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 15 1/2 oz. of silver, and as 15 1/2 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 4


Those then who maintain that silver is the measure of value

cannot prove that any demand for gold which may have taken place,

from whatever cause it may have proceeded, 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 4

l. 10s. sells for an amount of notes which represent 17 1/2

ounces of silver, whereas in the bullion market it can only be

exchanged for 15 1/2 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.

The market price of silver is at the present time 5s. 9 1/2d.

per oz. estimated in bank-notes, the mint price being only 5s.

2d., consequently the standard silver in 100 l. is worth more

than 112 l. 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 quoted declares

silver to be a legal tender for sums only not exceeding 25 l.

except by weight. If the Bank insisted on paying the holder of a

bank-note of 1000 l. 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 25 l. which they might pay

him in debased coin. But the 1000 l. so consisting of 975 l. pure

money, and 25 l. debased, is worth more than 1112 l. 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 counties. 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

banknotes, 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 three millions to the

general circulation of England.

The money of a particular county 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.

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.(9*) If they attempted it, the same check which compelled

the Bank of England to withdraw part of their notes from

circulation when they used 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, that the rate of interest, and not the price

of gold or silver bullion, is the criterion by which we may, that

if it were always judge of the abundance of paper-money 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.

“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; not in

the metal pieces, but what can be got for them.”

And in other parts of his work, 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. 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 (10*)) 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


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 permanently 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. (11*)

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, etc.” to carry on that trade; and it

can be of little consequence to him, provided he obtain the

quantity of materials, etc. 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 county is necessarily limited to the amount of

the “materials, provisions, etc.” 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 their 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 reminder

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 county,

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 unfavourable 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 doubled since 1797, and their dividends have

proportionally increased, I am ready to admit with Mr Thornton,

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. 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 4 l. 10s. shall pass for 3 l. 17s. 10 1/2d.,

to-morrow they may degrade 4 l. 15s. to the same value, and in

another year 10 l. 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 twenty millions, nearly the capital

of the funded 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 would 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 expence 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


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

superabundant, or a deficient quantity (as some have supposed) of

their notes in circulation.(12*)

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.


1. 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.

2. 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. 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 reminder 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.

3. 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


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.

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.

4. 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.

5. When the gold coin was debased, previously 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.

6. 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,

be caused by a variation in the relative value of those metals;

but an excess of the market above the mint price prodding 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 4 l. 3s.

or 4 l. 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 4 l. 3s. to 4 l. 4s.

[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 3 l. 17s. 6d.] per ounce, and our

guineas being to be purchased at 3 l. 17s. 10 1/2d., clearly

demonstrates the grounds of our fears; it being only necessary to

state those facts to the Chancellor of the Exchequer ” 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 3 l. 17s. 6d.

7. The relative value of gold and silver is on the Continent

nearly the same as in London.

8. 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.

9. They might, on some occasion, displace Bank of England notes,

but that consideration does not affect the question which we are

not discussing.

10. In the following observations, I wish it to be understood, as

supposing always the same degree of confidence and credit to


11. I have already allowed that the Bank, as far as they enable

us to turn our coin into “materials, provisions, etc.” 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.

12. At that period the price of gold kept steadily under its mint



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. 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 attibutes,” 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.” 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, 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

instument 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 counties 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.”

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 counties. Yet immediately after 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. “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 counties which

tade 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 ascertined, 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.” Why soon? Is it not admitted “that

excess and deficiency of currency are only relative terms; that

the circulation of a county can never be superabundant,” (and

therefore can never be deficient,) “except in relation to other

countries.” 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, drin 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 county, 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 county will have imported

one commodity in exchange for another, and the coin and bullion

will in both countries have regined 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 tade 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

superstucture of political economy is built;” 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 100 l. when that coffee cost

here 105 l. – when by sending 100 l. of the 105 l. 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)

100 l. in money, when 95 l. invested in coffee and exported will

be equally valuable as the 100 l. 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, etc. etc. 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, etc. etc.

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, etc. 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 county ever

possessed a general glut of all commodities. It is evidently

impossible. If a county 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 county 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 county: accordingly we find, that

to increase its amount is never the voluntary act of any county

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 counties 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 counties 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 industious county,

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 counties 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 counties 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 100,000 l. 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 tansactions would be

settled by bills of exchange, with the exception of the 100,000

l. 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 county, 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 county to

another from causes connected with the exchange, yet they

represent these transactions as quite inconsiderable in degree.

Mr Huskisson observes ‘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, refers 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


The passages are in substance precisely the same, and must

stand or fall together. If “we acknowledge that bullion

occasionally passes from one county 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,” to what cause can it be

ascribed but to that mentioned by Mr Huskisson? “The fresh

supplies of bullion which are yewly poured in, (and in newly 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 tades which

a county finds it necessary to engage in. In the ewly 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. They say,

“according to this view 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


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


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 5 l. and upwards, and can by no

means be proved by an increase of 1 l. and 2 l. 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 1 l.

and 2 l. 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 17 1/2 to 18

millions, or 500,000 l., 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


On the 1st January, 1810 2,669,320

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 880,880 l.; 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 900,000

l., 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 5 l. and upwards, including bank post bills, did not,

during that period, exceed 150,000 l. 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 banknotes 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 tuth. 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 tbe 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 fal1 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.

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

Total of Bank Notes, Millions; Rate of Hambro’


17th February, 1797; 8 1/2; 35s 6g

Rose Gradually in 1797 and 1798 to; 13; 38s 0g

March 1799; 13 1/2; 37s 7g

After this period, great commercial distress, large importation

of corn, heavy subsidies, and the Hambro’ Exchange continued

falling, and on the 2d January, 1801 wasas low as; — ; 29s 8g

Between the end of the year 1799 to the end of 1802, an increased

quantity of 1 l. and 2 l. notes were issued, swelling the sum

total to all notes to; 13 1/2 to 16 1/2; Fluctuation from 33s 3g

to 29s 8g

From January, 1803, to the end of 1807; 16 1/2 to 18; Fluctuation

from 32s 10g to 35s 10g

From January, 1808, to Christmas 1809; 17 1/2 to 18; Fall from

34s 9g to 28s 6g

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

I have omitted as much of Mr Pearse’s 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 put be

momentarily lowered by the amount of the bank issues.

The average amount of bank notes from the year 1797 to 1809

inclusive, in the following table, is copied from the Report of

the Bullion Committee. The rates of exchange are extracted from a

list presented by the mint to parliament. There 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 5 l. including bank post bills, according

to the first account is

£15,706,226 of notes under 5 l. £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 14 oz. 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.

Average amount of Bank of England Notes in circulation in each of

the following years:

Notes of 5 l. and upwards, including Bank Post Bills; Notes under

5 l.; 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; 31.0 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; 34.0 Dec.; 32.0 Feb.

1803; 12,983,477; 3,864,045; 16,847,511; 35.0 Dec.; 34.0 Jan.

1804; 12,621,348; 4,723,672; 17,345,020; 36.0 Dec.; 34.8 Feb.

1805; 12,697,352; 4,544,580; 17,241,932; 35.8 March; 32.8 Feb.

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; 34.1 March; 34.2


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.

1811; ; 26.6 Jan.; 24.0 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 5 l. and upwards in circulation for those eighteen days,

including bank post bills, is £16,286,950

And of those under 5 l. £7,260,575

Total £23,547,525

“If,” say the Reviewers, “considerable portions of the

currency were taken from the idle, and those who live upon fixed

incomes, 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 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, “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 ofincreased

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

4 l. 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 3 l. 17s.

10 1/2d.; 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 reminder would be so

rised, 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 1 l. and 2 l. 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 2ol.-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. 3 l. 17s. 10 1/2d. per

oz., such payments to commence at the period recommended by the


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 3 l. 17s. 10 1/2d. 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 20 l. 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 circulaiion. The facility

therefore with which bullion would be obtined 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 overcharge 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.