The High Price of Bullion
by David Ricardo
1810

The High Price of Bullion, a Proof of the Depreciation of Bank
Notes.
by David Ricardo
London: Printed for John Murray, 32, Fleet-Street; And Sold by
Every Other Bookseller in Town and Country
1810


Introduction

    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
pledge.
    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
them.
    "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
countries.
    If a mine of gold were discovered in either of these
countries, the currency of that country would be lowered in value
in consequence of the increased quantity of the precious metals
brought into circulation, and would therefore no longer be of the
same value as that of other countries. Gold and silver, whether
in coin or in bullion, obeying the law which regulates all other
commodities, would immediately become articles of exportation;
they would leave the 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
wealth.
    If instead of a mine being discovered in any country, a bank
were established, such as the Bank of England, with the power of
issuing its notes for a circulating medium; after a large amount
had been issued either by way of loan to merchants, or by
advances to government, thereby adding considerably to the sum of
the currency, the same effect would follow as in the case of the
mine. The circulating medium would be lowered in value, and goods
would experience a proportionate rise. The equilibrium between
that and other nations would only be restored by the exportation
of part of the coin.
    The establishment of the bank and the consequent issue of its
notes therefore, as well as the discovery of the mine, operate as
an 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
coffers.
    If to supply the deficiency of their stock of gold they were
to purchase gold bullion at the advanced price, and have it
coined into guineas, this would not remedy the evil, guineas
would be still demanded, but instead of being exported would be
melted and sold to the Bank as bullion at the advanced price.
"The operations of the Bank," observed Dr Smith, alluding to an
analogous case, "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
adversaries."
    The Bank would be obliged therefore ultimately to adopt the
only remedy in their power to put a stop to the demand for
guineas. They would withdraw part of their notes from
circulation, till they should have increased the value of the
remainder to that of gold bullion, and consequently to the value
of the currencies of other countries. All advantage from the
exportation of gold bullion would then cease, and there would be
no temptation to exchange bank-notes for guineas.
    In this view of the subject, then, it appears, that the
temptation to export money in exchange for goods, or what is
termed an unfavourable balance of trade, never arises but from a
redundant currency. 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
price.
    If there were a great demand for corn its money price would
advance; because, in comparing corn with money, we in fact
compare it with another commodity; and for the same reason, when
there is a great demand for gold its corn price will increase;
but in neither case will a bushel of corn be worth more than a
bushel of corn, or an ounce of gold more than an ounce of gold.
An ounce of gold bullion could not, whatever the demand might be,
whilst its price was rated in gold coin, be of more value than an
ounce of coined gold, or 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
unnecessary.(2*)
    Thus then specie will be sent abroad to discharge a debt only
when it is superabundant; only when it is the cheapest exportable
commodity. If the Bank were at such a time paying their notes in
specie, gold would be demanded for that purpose. It would be
obtained there at its mint price, whereas its price as bullion
would be something above its value as coin, because bullion
could, and coin could not, be legally exported.
    It is evident, then, that a depreciation of the circulating
medium is the necessary consequence of its redundance; and that
in the common state of the national currency this depreciation is
counteracted by the exportation of the precious metals. (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
due.
    These expences then are the utmost limits of an unfavourable
exchange. However great my debt may be, though it equalled the
largest subsidy ever given by this 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
paper.
    While the circulating medium consists, therefore, of coin
undebased, or of paper-money immediately exchangeable for
undebased coin, the exchange can never be more above, or more
below, par, than the expences attending the transportation of the
precious metals. But when it consists of a depreciated
paper-money, it necessarily will fall according to the degree of
the depreciation.
    The exchange will, therefore, be a tolerably accurate
criterion by which we may judge of the debasement of the
currency, proceeding either from a clipped coinage, or a
depreciated paper-money.
    It is observed by Sir James Stuart, "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
consequences.
    Our circulating medium is almost wholly composed of paper,
and it behoves us to guard against the depreciation of the paper
currency with at least as much vigilance as against that of the
coins.
    This we have neglected to do.
    Parliament, by restricting the Bank from paying in specie,
have enabled the conductors of that concern to increase or
decrease at pleasure the quantity and amount of their notes; and
the previously existing checks against an over-issue having been
thereby removed, those conductors have acquired the power of
increasing or decreasing the value of the paper currency.
    In tracing the present evils to their source, and proving
their existence by an appeal to the two unerring tests I have
before mentioned, namely, the rate of exchange and the price of
bullion, I shall avail myself of the account given by Mr Thornton
of the conduct of the Bank before the restriction, to shew how
clearly they acted on the principle which he has expressly
acknowledged, viz. that the value of their notes is dependent on
their amount, and that they ascertained the variation in their
value by the tests I have just referred to.
    Mr Thornton tells us, "That if at any time the exchanges of
the country became so unfavourable as to produce a material
excess of the market above the mint price of gold, 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
abroad."
    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
value.
    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
l.
    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
millions.
    I do not dispute, that if the Bank were to bring a large
additional sum of notes into the market, and offer them on loan,
but that they would for a time affect the rate of interest. The
same effects would follow from the discovery of a hidden treasure
of gold or silver coin. If the amount were large, the Bank, or
the owner of the treasure, might not be able to lend the notes or
the money at four, nor perhaps, above three per cent.; but having
done so, neither the notes, nor the money, would be retained
unemployed by the borrowers; they would be sent into every
market, and would every where raise the prices of commodities,
till they were absorbed in the general circulation. It is only
during the interval of the issues of the Bank, and their effect
on prices, that we should be sensible of an abundance of money,
interest would, during that interval, be under its natural level;
but as soon as the additional sum of notes or of money became
absorbed in the general circulation, the rate of interest would
be as high, and new loans would be demanded with as much
eagerness as before the additional issues.
    The circulation can never be over-full. If it be one of gold
and silver, any increase in its quantity will be spread over the
world. If it be one of paper, it will diffuse itself only in the
country where it is issued. Its effects on prices will then be
only local and nominal, as a compensation by means of the
exchange will be made to foreign purchasers.
    To suppose that any increased issues of the Bank can have the
effect of 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
pernicious."
    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.

NOTES:

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
price.
    This would be true at a time when the currency consisted
wholly of paper not convertible into specie, but not while specie
formed any part of the circulation. In the latter case the effect
of an increased issue of paper would be to throw out of
circulation an equal amount of specie; but this could not be done
without adding to the quantity of bullion in the market, and
thereby lowering its value, or in other words, increasing the
bullion price of commodities. It is only in consequence of this
fall in the value of the metallic currency, and of bullion, that
the temptation to export them arises; and the penalties on
melting the coin is the sole cause of a small difference between
the value of the coin and of bullion, or a small excess of the
market above the mint price. But exporting of bullion is
synonymous with an unfavourable balance of trade. From whatever
cause an exportation of bullion, in exchange for commodities, may
proceed, it is called (I think very incorrectly) an unfavourable
balance of trade.
    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
exist.

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
price.

APPENDIX

    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
commenting.
    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
currency."
    These are circumstances, however, which are not absolutely
irreconcileable. Mr Pearse, as well as the Edinburgh Reviewer,
appears to have wholly mistaken the principle advanced by those
who are desirous of the repeal of the restriction bill. They do
not contend, as they are understood to do, that the increase of
bank notes will permanently lower the exchange, but that such an
effect will proceed from a redundant currency. It remains,
therefore, to be considered whether an increase of bank notes is
necessarily, at all times, accompanied with a permanently
increased currency, as if I can make it appear that it is not,
there will be no difficulty in accounting for a rise in the
exchange, with an increased amount of bank-notes.
    It will be readily admitted, that whilst there is any great
portion of coin in circulation, every increase of bank-notes,
though it will for a short time lower the value of the whole
currency, paper as well as gold, yet that such depression will
not be permanent, because the redundant and cheap currency will
lower the exchange and will occasion the exportation of a portion
of the coin, which will cease as soon as the remainder of the
currency shall have regained its value, and restored the exchange
to par. The increase of small notes, then, will ultimately be a
substitution of one currency for another, of a paper for a
metallic currency, and will not operate in the same way as an
actual and permanent increase of circulation*. We are not,
however, without a criterion by which we may determine the
relative amount of currency at different periods, as
distinguished from bank-notes, on which though we cannot
infallibly rely, it will probably be a sufficiently accurate test
to determine the question which we are now discussing. This
criterion is the amount of notes of 5l. and upwards in
circulation, which we may reasonably calculate always bear some
tolerably regular proportion to the whole circulation. Thus, if
since 1797 the bank-notes of this description have increased from
twelve to sixteen millions, we may infer that the whole
circulation has increased one-third, if the districts in which
bank-notes circulate have neither been enlarged nor contracted.
The notes under 5l. will be issued in proportion as the metallic
currency is withdrawn from circulation, and will be further
augmented, if there be also an augmentation of notes of a higher
denomination.
    If I am correct in this view of the subject, that the
increase in the amount of our currency is to be inferred from the
increased amount of bank-notes of 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         
19,727,520

 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'
Exchange

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
Sept.
1808;  13,402,160;  4,132,420;  17,534,580; 35.3 July; 32.4 Dec.
1809;  14,133,615;  4,868,275;  19,001,890; 31.3 Jan.; 28.6 Nov.
1810;  16,085,522;  6,644,763;  22,730,285; 31.2 June; 28.6 Dec.
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
Committee.
    This privilege of paying their notes as above described might
be extended to the Bank for three or four years after such
payments commenced, and if found advantageous, might be continued
as a permanent measure. Under such a system the currency could
never be depreciated below its standard price, as an ounce of
gold and 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.