3 "The High Price of Bullion, a Proof of the Depreciation of Bank notes,"

As much of the progress, such as it happens to be, which we have made during this long period is due to the writings and speeches of the late Mr. David Ricardo, M.P. for Portarlington, it may be proper to notice the principles he inculcated and the different publications by which he so assiduously kept the attention of parliament and the public fixed to the subject.

Before the Bullion Committee produced their report, Mr. Ricardo published the pamphlet, from which a quotation has already been taken, entitled, "The High Price of Bullion, a Proof of the Depreciation of Bank-notes." In that essay, which was clearly and forcibly written, and which ran through several editions, those principles were inculcated respecting the use and application of the precious metals and the exchanges, which were afterwards adopted by the Committee itself. When the Committee reported, and their Report amongst many other assailants was formally attacked by Mr. Bosanquet the Bank director, Mr. Ricardo came forward and vindicated its conclusions and his own doctrines with promptitude and ability. After this he continued to draw upon public attention by bringing out pamphlets on "The Profits of Stock," and "On the Best Means of Securing a Safe and Economical Currency,11 winding up his labours with a finished treatise, which appeared in 1817, on the "Principles of Political Economy and Taxation.11 In this he made rather free with some of the doctrines of Adam Smith, and was generally considered to have rendered good service to the 3cience, by eliminating as one of its fundamental principles the axiom that the exchangeable value of commodities is regulated not so much by the ratio between the demand for and supply of them in the market, as by the quantity of labour required to produce them in the market, which labour is the true measure of their expense.

Into that question, however, I have no room to enter here; and must therefore confine myself to a notice of his plan for making banknotes payable in bullion, which was to afford all the security of a gold currency without any of the expenses incurred in coining money, and without any accruing loss from the wear and tear of the money coined. Of this idea, which was not only lauded to the skies by his friends and the political party with which he acted in Parliament, as the perfection of felicitous invention and original genius; but was emphatically commended by committees of both houses of Parliament - some short account is called for; as, notwithstanding all the praises bestowed upon it, and the deliberate manner in which King, Lords, and Commons concurred in carrying it into effect, it proved in the end as utter a failure as any contained in the annals of invention.

There are two great points desired in order to constitute a good currency - first, security, and next economy. If by any device whatever we could maintain paper steadily upon a par with gold, or if, as Adam Smith has observed, we could guard against the issue of any greater quantity of notes at any time than would represent the amount of gold and silver that would have been employed if they had not been resorted to, we know that the cheapness with which such notes can be produced, and their convenience for the purposes of general use, would render them unobjectionable instruments of exchange. The causes of the great difficulty experienced in keeping the value of guineas and bank-notes equal in this country were thoroughly understood; and amongst the arguments insisted on by the friends of the Bank of England, in resisting the proposed return to cash payments, no one was pressed into harder service, or proved more vexatious to the reformers, than that which maintained that the gold had gone out of the kingdom before the Bank Restriction Act passed, and that, however you changed the law, it would go again. The great desideratum, therefore, was a device by which the gold could be freely used, and yet kept at home. There was the rub. For it was not to be denied that the value of a currency, made up partly of paper and partly of coin, must be depreciated whenever an overissue of paper takes place. Not only does the value of the paper vary under such circumstances, but the value of the coin also. When this happens, the coin is melted down into bullion, because a profit is to be gained by its exportation. It was at this point, as Mr. Ricardo conceived, that the hinge of the difficulty was to be detected; and it struck him that if there was no coin in circulation, the occupation of the bullion merchants in sending notes to the Bank to be exchanged for gold, and reaping a profit by melting it when thus obtained, would necessarily cease; and with it the loss which had thereby formerly accrued to the state. He therefore proposed, that the Bank should pay in gold but not in coin - and for this purpose the mode of payment at the Bank, was to be in bars of gold of twenty ounces each.

Having thus introduced the discovery, it will now perhaps be best to refer back to Mr. Ricardo's pamphlet for the original explanation of it, which was given by the author, in the following passages.

"It appears, therefore, that if there was perfect security, that the power of issuing paper money would not be abused; that is, if there was perfect security for its being issued in such quantities as to preserve its value relatively to the mass of circulating commodities nearly uniform, the precious metals might be entirely discarded from circulation.

"To secure," says Mr. Ricardo, "the public against any other variations in the value of the currency than those to which the standard itself is subject; and, at the same time, to carry on the circulation with the medium the least expensive, is to attain the most perfect state to which a currency can be brought; and we should possess all those advantages by subjecting the Bank to the delivery, of uncoined gold or silver at the mint standard and price, in exchange for their notes, instead of the delivery of guineas; by which means paper would never fall below the value of bullion, without being followed by a restriction of its quantity. To prevent the rise of paper above the value of bullion, the Bank should be also obliged to give their paper in exchange for standard gold at the price of 3l. 17s.4 an ounce. Not to give too much trouble to the Bank, the quantity of gold to be demanded in exchange for paper at the mint price of 3l. 17 s. l0 1/2d., or the quantity to be sold at the Bank at 3l. 17s. should never be less than twenty ounces. In other words the Bank should be obliged to purchase any quantity of gold that was offered them, not less than twenty ounces, at 3l. 17s. per ounce, and to sell any quantity that might be demanded at 3l. 17s. 10 1/2d. While they have the power of regulating the quantity of their paper, there is no possible inconvenience that could result to them from such a regulation.