Economic Essays by David Ricardo (Routledge Revivals)

E. C. K. Gonner

• Publisher: Routledge
• Year: 2013
• Print ISBN: 9780415703529
• eBook ISBN: 9781134481484
• Topic: Business
• Subtopic: Business General
• Index: Business

David Ricardo (1772 – 1823) was a hugely influential British political economist and stock trader. This volume, first published in 1923, contains five important pamphlets published by him, edited and with an overarching introductory essay by E. C. K. Gonner. Each essay relates either to monetary and financial subjects - including the high price of Bullion, monetary theory and the position of the Bank of England - or to the agricultural conditions of Britain and proposed solutions to the problems discussed. This is a fascinating and detailed work, which will be of great value to those with an interest in Ricardo's theories and British economic history.

REPLY

TO

MR BOSANUET’S

PRACTICAL OBSERVATIONS

ON THE

REPORT

OF

THE BULLION COMMITTEE.

1811

REPLY
TO
MR BOSANQUET’S

CHAPTER I.

PRELIMINARY OBSERVATIONS—MR BOSANQUET’S OBJECTIONS TO THE CONCLUSIONS OF THE BULLION COMMITTEE BRIEFLY STATED.

§ 1. THE question concerning the depreciation of our currency has lately assumed peculiar interest, and has excited a degree of attention in the public mind, which promises the most happy results. To the Bullion Committee we are already most particularly indebted for a more just exposition of the true principles which should regulate the currency of nations, than has before appeared in any authoritative shape, in this or any other country. It could not, however, be expected that a reform, so important as that which the Committee recommend, could be effected without calling forth the warmest opposition, dictated by the erroneous principles of some, and by the interested views of others. Hitherto this opposition has been attended with the best effects; it has tended to prove more fully the correctness of the principles laid down by the Committee; it has called forth new champions in the field of argument; and discussion has daily produced new converts to the cause of truth. Of all the attacks on the report of the Committee, however, that of Mr Bosanquet has appeared to me the most formidable. He has not, as his predecessors have done, confined himself to declamation alone; and though he disclaims all reasoning and argument, he has brought forward, what he thought were irrefragable proofs of the discordance of the theory with former practice. It is these proofs which I propose to examine, and I am confident that it will be from a deficiency of ability in me, and not from any fault in the principles themselves, if I do not show that they are wholly unfounded. Mr Bosanquet commences, by availing himself of the vulgar charge, which has lately been so often countenanced, and in places too high, against theorists. He cautions the public against listening to their speculations before they have submitted them to the test of fact; and he kindly undertakes to to be their guide in the examination. If this country had hitherto carried on trade by barter, and it were, for the first time, going to establish a system by which the intervention of money should facilitate the operations of trade, there might be some foundation for calling the principles which might be offered to public attention wholly theoretical; because, however clearly dictated by the experience of the past, their practical effects would not have been witnessed. But, when the principles of a currency, long established, are well understood; when the laws which regulate the variations of the rate of exchange between countries have been known and observed for centuries, can that system be called wholly theoretical which appeals to those principles, and is willing to submit to the test of those laws?

To such an examination the report of the Committee is now submitted, and the public is called upon to believe that a theory which its adversary allows to be unassailable by reasoning and argument, is to be battered down by an appeal to facts. We are told, “that boldly as the principle is asseted, and strongly as reason appears to sanction it, that it is not generally true, and is at variance with fact.” This is the test to which I have long wished to see this important question brought. I have long wished that those who refused their assent to principles which experience has appeared to sanction, would either state their own theory as to the cause of the present appearances in the state of our currency, or that they would point out those facts which they considered at variance with that which, from the firmest conviction, I have espoused.

To Mr Bosanquet, then, I feel considerably obliged. If, as I trust, I shall be able to obviate his objections; to prove them wholly untenable; to convince him that his statements are at variance with fact; that for his supposed proofs he is indebted to the wrong application of a principle, and not to any deficiency in the principle itself:—I shall confidently expect that he will abjure his errors, and become the foremost of our defenders.

§ 2. Mr Bosanquet has thus stated the principal positions of the Committee, to which he is induced to object:

1st, “That the variations of the exchange with foreign countries can never, for any considerable time, exceed the expense of transporting and insuring the precious metals from one country to the other.

2d, “That the price of gold bullion can never exceed the Mint price, unless the currency in which it is paid is depreciated below the value of gold.

3d, “That, so far as any inference is to be drawn from Custom-house returns of exports and imports, the state of the exchanges ought to be peculiarly favourable.

4th, “That the Bank, during the restriction, possesses exclusively the power of limiting the circulation of bank notes.

5th, “That the circulation of country bank notes depends upon, and is proportionate to, the issues from the bank.

Lastly, “That the paper currency is now excessive, and depreciated in comparison with gold, and that the high price of bullion and low rates of exchange are the consequences as well as the sign of such depreciation.”

These principles being in all essential points the same as those which I have avowed, and on which Mr Bosanquet has attacked me, to avoid the necessity of speaking at one time of the opinion of the Bullion Committee, and at another of my own, I shall, in the future pages of this work, consider them as the principles of the Bullion Committee only, and shall take occasion to mention any shade of difference that may occur between theirs and mine.

CHAPTER II.

MR BOSANQUET’S ALLEGED FACTS, DRAWN FROM THE HISTORY OF THE STATE OF EXCHANGE, CONSIDERED.

SECTION I.

Exchange with Hamburgh.

§ 3. THE first position controverted is, “That the variations of the exchange with foreign countries can never, for any length of time, exceed the expense of transmitting and insuring the precious metals from one country to the other.”

Can this be called a theoretical opinion, now brought forward for the first time? Has it not been sanctioned by the writings of Hume¹ and Smith? and has it not been undisputed even by practical men?

Mr ——, in his evidence before the Bullion Committee, observes, “that the extent to which the exchange can fall is the charge of transporting bullion, together with an adequate profit to the risk the transporting such specie is liable to.”

Mr A. Goldsmid “never recollected the exchange to have differed more from par than 5 per cent. before the suspension of cash payments.”

Mr Grefulhe stated, “that since he had been in business he recollected no period prior to the suspension of the cash payments by the Bank, when the exchange was considerably below par.”

The same opinions were given by many practical men before the Lords’ Committee in 1797.

§ 4. But in opposition to all these opinions, Mr Bosanquet has facts which he boldly thinks will prove the unsoundness of the doctrine. “In the years 1764 to 1768,” he observes, “prior to the recoinage, when the imperfect state of the coins occasioned gold to be 2 to 3 per cent. above the Mint price, the exchange with Paris was 8 to 9 per cent. against London, at the same time—the exchange with Hamburgh was, during the whole period, 2 to 6 per cent. in favour of London; here appears, then, a profit of 12 to 14 per cent. for the expense, in time of peace, of paying the debt to Paris with gold from Hamburgh, which must have exceeded the fact by at least 8 or 10 per cent.; and it is worthy of remark, that the average exchange with Hamburgh, for the years 1766 and 1767, of 5 per cent. in favour of London, added to the 2 per cent., the price of gold above the Mint price, constituted a premium of 7 per cent. on the importation of gold into England, or, deducting 1

per cent. for expenses in time of peace, a net profit of 5 per cent., yet the exchange was not rectified thereby. Again, in 1775, 1776, and 1777, after the recoinage, we find the exchange on Paris 5, 6, 7, and 8 per cent. against London in time of peace, when half the amount would have conveyed gold to Paris, and one-fourth have paid the debts of Paris at Amsterdam.

“In the years 1781, 1782, and 1783, being years of war, the exchange was constantly from 7 to 9 per cent. in favour of Paris; and, during this period, gold was the common circulation of this country; and the Bank was compelled to provide it for the public at the Mint price. It has been already shown how little effect the precious metals produced towards equalising the exchange with Hamburgh during the years 1797 and 1798; and another instance may be adduced in the years 1804 and 1805, when the Paris exchange varied from 7 to 9 per cent. in favour of London.

“In every case here cited, the fluctuations of the exchanges greatly exceeded the expense of conveying gold from one country to the other, and to a much greater degree in most of them than in the present instance; the circumstances of the times were, it will readily be admitted, more favourable to intercourse on those occasions than they now are, and the state of metallic circulation afforded facilities not now experienced here. Yet, under all these disadvantages, the principle assumed by the Committee was not operative, and cannot therefore be admitted as a solid foundation for the superstructure of excess and depreciation attempted to be raised upon it.”

If the facts had been as here stated by Mr Bosanquet, I should have found it difficult to reconcile them with my theory. That theory takes for granted, that whenever enormous profits can be made in any particular trade, a sufficient number of capitalists will be induced to engage in it, who will, by their competition, reduce the profits to the general rate of mercantile gains. It assumes that in the trade of exchange does this principle more especially operate, it not being confined to English merchants alone; but being perfectly understood, and profitably followed, by the exchange and bullion merchants of Holland, France, and Hamburgh; and competition in this trade being well known to be carried to its greatest height. Does Mr Bosanquet suppose that a theory which rests on so firm a basis of experience as this can be shaken by one or two solitary facts not perfectly known to us? Even should no explanation of them be attempted, they might safely be left to produce their natural effects on the public mind.

§ 5. But before the reasoning of the Committee can be proved defective by Mr Bosanquet’s facts, we must examine the source from whence those supposed facts are derived.

“Mr Bosanquet tells us that there is annexed to Mr Mushet’s pamphlet a table, showing, 1st, The rate of exchange with Hamburgh and Paris for 50 years past, and how much it has been, in each instance, above or below par.

2d, “The price of gold in London, and a comparison of this price with the English standard or Mint price.

3d, “The amount of bank notes in circulation, and the rate of their assumed depreciation, by a comparison with the price of gold.”

Now, the accuracy of these tables must be admitted or proved before the conclusions, which result from the inspection of them, can command assent; but so far from this being the case, their accuracy is disowned by Mr Mushet himself, who, in the second edition of his pamphlet, acknowledged the false principle upon which his first tables were calculated, and has given us a new and amended set.

The following notice accompanied the second edition of Mr Mushet’s pamphlet:—“In the first edition of this work I stated the par of exchange with Hamburgh at 33 schillings and 8 grotes, and at that considered it as a fixed par; from the best information which I have been able to obtain upon ’Change since, 34.11

are considered as the par, and in the present edition I have stated it as such. I have also corrected the mistake of considering the par to be fixed; because gold being the standard of the money of England, and silver in Hamburg, there can be no fixed par between those two countries; it will be subject to all the variations which take place in the relative value of gold and silver. For example, if 34 schillings 11 grotes and

of Hamburgh currency be equal in value to a pound sterling, or

of a guinea, when silver is 5s. 2d. per oz., they can no longer be so when silver falls to 5s. 1d. or 5s. per oz., because a pound sterling in gold being then worth more silver, is also worth more Hamburgh currency.

“To find the real par, therefore, we must ascertain what was the relative value of gold and silver when the par was fixed at 34.11

, and what is the relative value at the time we wish to calculate it.

“For example, if the price of standard go...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Original Copyright Page
• PREFACE
• TABLE OF CONTENTS
• INTRODUCTORY ESSAY
• HIGH PRICE OF BULLION.
• REPLY TO MR. BOSANQUET’S PRACTICAL OBSERVATIONS ON THE REPORT OF THE BULLION COMMITTEE.
• PROPOSALS FOR AN ECONOMICAL AND SECURE CURRENCY, WITH OBSERVATIONS ON THE PROFITS OF THE BANK OF ENGLAND AS THEY REGARD THE PUBLIC AND THE PROPRIETORS OF BANK STOCK.
• INFLUENCE OF A LOW PRICE OF CORN ON THE PROFITS OF STOCK.
• ON PROTECTION TO AGRICULTURE.