Money and Banking in Jean-Baptiste Say's Economic Thought

Gilles Jacoud

• Publisher: Routledge
• Year: 2013
• ISBN:
  9781135117979
• Edition: 1
• Topic: Commerce
• Subtopic: Commerce Général

The aim of this work is to make available to English-language readers a translation of Jean-Baptiste Say's main texts on money and banking which were not at present accessible in English. The work includes chapters from his books taking into account the variants between the different editions, articles and hitherto unpublished manuscripts. Comprehension of these different texts is facilitated by an introduction designed to place them in their context and by a chronological table giving the main events of Say's life and editorial activity in parallel with the main political, economic and monetary events of the time.

1 Introduction
Gilles Jacoud

Monetary questions hold a prime position in the writings of Jean-Baptiste Say (1767–1862) on political economy. In the first edition of the Traité d’économie politique (A Treatise on Political Economy) in 1803 which he divided into five books, he devoted book 2 to money. In the Catéchisme d’économie politique (Catechism of Political Economy), the first edition of which was published in 1815, he starts the work with three chapters on the subject. And in the Cours complet d’économie politique pratique (Complete Course in Practical Political Economy) the first edition of which appeared in 1828–29, the third part of the work is dedicated to exchange and monies. In addition to these three works, various articles, reports and other texts concern money and banking.

Furthermore, Say’s analysis of monetary questions changed over the years. The second edition of the Treatise on Political Economy, which appeared in 1814, altered the content of the chapters on monetary questions and in the third edition, published in 1817, Say included the lessons he had drawn from debates in England, particularly the controversy over the Bullion Committee. In the same way, after the publication of the Complete Course in Practical Political Economy, Say was contemplating changes, particularly to the chapter about paper money, which led to additions and deletions in the posthumous 1840 edition.

To fully comprehend Say’s monetary ideas, it is necessary to refer directly to his writings. For French-speaking readers, consulting the original texts is now being made easier by the publication of Say’s Œuvres complètes (Complete Works).¹ However, for English-speaking readers, access to an English version of Say’s texts was until now much more limited. It is true that the Treatise on Political Economy was translated into English in 1821, in England and in the United States: the translation, however, concerns the fourth edition which was published in 1819. The various reprints then concerned this fourth edition² and English-speaking readers interested in monetary questions had access only to the two chapters which this fourth edition devoted to money and papers capable of playing this role.³

The Catechism of Political Economy was translated into English in 1816, but Say published a second, completely revised edition in 1821. A third edition appeared during his lifetime in 1826. The additions planned by Say are included in the posthumous editions in 1835, 1848 and 1881.⁴ There is no English version of these editions or one which compares them.⁵ As for the Complete Course in Practical Political Economy, which includes Say’s longest passages on money, it has never been translated into English.⁶

This limited access of English-speaking readers to Say’s monetary writings was all the more regrettable as Say’s ideas in this field had a strong impact on monetary practices and on the operation of banks, both inside and outside France. Ten years after Say’s death, Charles Coquelin emphasises in an 1842 article that Say’s analysis remains ‘the dominating opinion in matters of credit and banking’ (Coquelin 1842: 799).

The aim of this work is to make available to English-language readers a translation of Jean-Baptiste Say’s main texts on money and banking which were not at present accessible in English.

This introduction first gives an overview of the monetary and banking context of the time in which Say was writing and then sheds light on Say’s ideas concerning money and banking. The selection of translated texts is presented in a third step and the choices of translation are explained in a fourth.

The monetary and banking context

In the last part of this work is the chronological table giving the main events which mark monetary and banking history of the time. Say is naturally interested in the reality of monetary practices in France but he also closely follows what is happening abroad and above all in England.

When Say started to write his Treatise on Political Economy, France was emerging from a particularly troubled decade as regards monetary matters. In 1789, a few months after the start of the Revolution, the Constituent Assembly needing money launched a loan of 400 million livres, the monetary unit then in use, by issuing securities called assignats. These were bills which were not convertible into metallic money, but intended to be refundable on the proceeds of the sale of the clergy’s properties. They bore an interest of 5 per cent.

Assignats soon took on a monetary nature. The following year, interest was abolished and then the bills became bearer bills, that is to say that they no longer gave the name of the owner, which made them easier to hand on to another person. Issues were multiplied and bills of 100 and then 50 livres were created. The need for small denominations led to the issue of assignats for 5 livres, and then in an accounting system in which the livre remained subdivided into 20 sous, to bills of 50, 25, 15 and 10 sous.

The use of assignats became general, all the more so as the Convention, the new political authority which put an end to royalty, forbade the use of any other bills for payment. It finally imposed a true monetary dictatorship of the assignat by forbidding the use of metallic money. It became the revolutionary money, a money which, however, the abuse of issues never ceased to depreciate. The multiplication of these issues finally caused the price of the assignats to collapse. In 1796, they were exchanged for other bills, territorial mandates, but these in turn saw their price collapse within a few months.⁷

This collapse rendered a return to metallic money indispensable, which in itself made the issue of convertible banknotes possible.⁸ In 1796, the Caisse des comptes courants opened in Paris, which issued, generally when discounting bills of exchange, 500 and 1,000 franc notes convertible to gold or silver at sight. Other banks also issuing banknotes quickly followed. The year 1800 saw the official birth of the Bank of France. Founded by bankers and merchants involved in the running of the Caisse des comptes courants, it immediately merged with this establishment and imposed itself as the leading Paris issuing bank. On April 14, 1803, with Bonaparte’s support, it obtained the monopoly of issuing notes on Paris.

France had set up bimetallism only a few days earlier.⁹ The franc, which replaced the livre as unit of account on August 15, 1795, was defined by a weight of five grams of silver. A fixed legal ratio with gold was set: a quantity of gold was worth 15.5 times the same quantity of silver.

If post-revolutionary France was trying to rationalise its monetary system and organise the issue of banknotes, England which already had a well-established banking system was more preoccupied by the ratio of the note to metal. The Bank of England had been issuing inconvertible notes since 1797, a situation which gave rise to numerous debates. These included questions that were also being formulated in France. Sir Francis Baring’s analysis of the reasons which brought about the suspension of convertibility thus emphasised phenomena which also preoccupied the Bank of France (Baring 1797). Country banks contributed to drying up the Bank of England’s reserves, behaviour which before the monopoly of 1803 gave the Bank of France arguments against multiplying the number of issuers. At the same time, the advances to the state made the establishment more vulnerable, which explains the care taken by the fledging Bank of France to show that it was not, for its part, linked to the state. It was itself confronted with a drying up of its reserves on several occasions, which led it to envisage suspending the convertibility of its notes.¹⁰ In England, it was rather the excess which inconvertibility risked to produce on issue, and its impact on prices, which was the subject of debate.

Although the Bank of England could have started making payments in metal again in October 1797, the Prime Minister William Pitt, wishing to be sure of having financial means for the war, refused the return to convertibility. The Bank of England appears to have issued only moderately in the first years which followed the suspension of convertibility (Tooke 1838: 286–7). In 1803, Charles James Fox and then Lord Peter King¹¹ denounced before Parliament the responsibility of excessive issue in the increase in the price of gold and in the depreciation of the exchange rate. This theory, already put forward by Walter Boyd (Boyd 1801) and reformulated by Henry Thornton (Thornton 1802), was the object of fresh interest a few years later.¹² It was lengthily debated at a time when in France debates concerned the best way of undertaking issuing in the provinces.

In 1808, the new articles of the Bank of France authorised it to open branches in the provinces and it received the monopoly of issue in the towns in which it set up.¹³ The Bank however proved less than enthusiastic about this prospect¹⁴ which it considered unprofitable and it was only under pressure from Napoleon that it finally opened branches in Lyon and Rouen¹⁵ then in Lille.¹⁶ It took advantage of the end of the Empire to close them again. In Rouen, an independent bank replaced the branch of the Bank of France in 1817. Nantes and Bordeaux received permission to open independent banks the following year.¹⁷

The question of issue outside the capital was also posed in England at the same time. Attention was however centred on the effects of the inconvertibility of the Bank of England’s banknotes. In the autumn of 1806, the country was confronted with a movement of increase in prices, accompanied by a fall in the exchange rate and a rise in the price of precious metals. In August 1809 David Ricardo published his first article incriminating the excessive issue of the Bank of England made possible by inconvertibility.¹⁸ The reactions to this article led Ricardo to publish several replies and in January 1810 to publish a pamphlet, The High Price of Bullion, a Proof of the Depreciation of Bank Notes,¹⁹ which marked the beginning of the economist’s fame. In the following weeks, the House of Commons appointed a committee, the Bullion Committee, with the task of writing a report on the causes of the high price of gold ingots. This was the famous Bullion Report,²⁰ the discussion of which opposed the anti-bullionists who did not believe in the impact of inconvertibility on the increase in prices, and the bullionists who shared Ricardo’s views.

The Bullion Report, which explained the increase in the price of gold and the fall in the exchange rate by excessive paper in circulation, concluded in the need to resume payments in metal to control issue. It gave rise to long debates in Parliament where Henry Thornton, co-author of the report,²¹ referred in p...