Studies in the Theory of International Trade

Jacob Viner
Viner, Jacob
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New York: Harper and Brothers Publishers
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Chapter III


What must we for a standard own,
By which the price of things are known?
'Twas thought, time past, by men of sense,
'Twas guineas, shillings, pounds and pence;
The Bank has said, and says so still
'Tis nothing but a paper bill;
'Tis in Sir Francis Burdett's head
The standard is a loaf of bread,
Whilst Adam Smith did always say,
It was the labor of a day.
—("William Pitt," The bullion debate; a serio-comic satiric poem, 1811, p. 7.)



The suspension of specie payments by the Bank of England in 1797, and the currency, exchange, and price phenomena which followed it, gave rise to a controversial literature of great extent and, on the whole, of surprisingly high quality. Until the resumption of specie payments was approaching, the general trend of prices and of prosperity was upward; but resumption was followed by a long and trying period of falling prices and of economic distress. The change in circumstances led to a marked difference in the distribution of emphasis on the issues involved, and, in a number of instances, to a sharp reversal of doctrinal position by participants in the controversies of both periods. It will be convenient, therefore, to deal separately with the literature of the earlier and the later periods, which can be distinguished as the inflation and deflation periods, respectively.


Of all the older controversies in the field of international trade theory, the inflation phase of the bullionist*1 controversy has probably been most fully and competently canvassed by modern writers.*2 But there is still room for a resurvey of the controversy.


The contemporary literature of the bullionist controversy is of great importance for the history of the theory of international trade in its monetary aspects. The germs at least of most of the current monetary theories are to be found in it. It embodies the first detailed analysis of the relationships between currency phenomena and international balances, exchange rates, and price levels, under both metallic and inconvertible paper currencies. Foreign exchange theory is carried substantially forward, and the theory of the mechanism of adjustment of international balances is advanced substantially beyond the stage at which it was left by Hume. There are also discussions of a truly pioneer character of the functions of a central bank in a complex credit economy with respect to the maintenance of international monetary equilibrium and of internal business stability.


The contemporary participants in the controversy arrayed themselves fairly sharply in two opposing groups: the "bullionists" or "anti-Restrictionists" on the one hand, who criticized the course of monetary events, and the "anti-bullionists" on the other hand, who defended the government and the Bank of England against the attacks of the bullionists. But as will be seen, there were important divergences of opinion within each group. The essential doctrines of the bullionists were expressed by a small group of writers, of whom Boyd,*3 King,*4 Thornton,*5 Wheatley,*6and Horner,*7 were most important, during the first period, 1801 to 1803, of marked premium on bullion and fall in the exchanges. Similar phenomena, even more marked in degree, in connection with the Bank of Ireland gave rise to a parliamentary inquiry*8 and to the bullionist publications of John Leslie Foster,*9 Henry Parnell,*10 and Lord Lauderdale.*11 The reappearance from 1809 on of a high premium on gold and a substantial fall in the exchanges gave rise to a flood of tracts and pamphlets, of which the most important on the bullionist side, in addition to the Report of the Bullion Committee of 1810, were the contributions of Ricardo, his first appearance in print as an economist,*12 T. R. Malthus,*13 Robert Mushet,*14 and William Huskisson.*15


The most effective statements of the anti-bullionist position were in speeches in Parliament by Nicholas Vansittart*16 and George Rose,*17 and in tracts by Henry Boase,*18 Bosanquet,*19 Coutts Trotter,*20 and J. C. Herries.*21


Ricardo made but few additions to the analysis of his predecessors,*22 and, as will be shown later, on some important points he committed errors from which some of the earlier supporters of the bullionist position had been free. But the comprehensiveness and the force and skill of his exposition and the assurance and rigor of his reasoning made him at once the leading expositor of the bullionist position. It was largely through Ricardo's writings, moreover, that the bullionist doctrines exercised their influence on the subsequent century of monetary controversy. Special attention is given, therefore, to Ricardo's position in the following account of the bullionist controversy.



An excellent statistical compilation of the significant banking, price, and exchange rate data relating to the suspension of cash payments, presented in both tabular and graphical form, is to be found in Silberling's essays, and much of this material is reproduced by Angell. Silberling has computed and compiled some of the important series from original data not hitherto available in print or available only in raw shape. There need be presented here, therefore, only the minimum amount of information as to the nature of the currency and banking system of the time and the course of monetary events essential for an understanding of the theoretical issues raised in the course of the controversy.


From the outbreak of the war with France in 1793, the Bank of England had been under a strain mainly because of the great demands for advances made upon it by the government, which it had resisted, but unsuccessfully. Early in 1797, a general panic, induced apparently by rumors of a French landing on English soil, and accentuated by failures and suspensions on the part of the country banks, led to a general clamor for gold. On February 25, 1797, there were only £1,272,000 of specie and bullion in the Bank, as compared to ordinary reserves of £5,000,000, or over. On February 26, 1797, the government, at the request of the Bank, issued an Order in Council prohibiting specie redemption of its notes by the Bank. By an Act of May 3, 1797, the restriction of cash payments was validated and continued in effect, subject to minor qualifications, until June 24, 1797, and by a succession of later acts the suspension of specie payments was enforced until after the end of the war. With the factors responsible for the suspension of specie payments in 1797, we need not here concern ourselves.*23 The suspension of specie payments was quickly followed by an inward flow of bullion, recovery of the Bank from its strained condition, and general restoration of confidence, and it was not until toward the end of 1799 that the exchange on Hamburg fell substantially below the pre-Restriction par and a premium was quoted on bullion over paper. From 1804 to 1808 the exchanges were again at or near parity, and paper was at no or a small discount in relation to bullion. But from 1809 to the end of the war there again prevailed low sterling exchanges and substantial premiums of bullion over paper.*24


England, prior to the Restriction, although legally on a bimetallic basis, had for some time been in effect on a gold standard basis, since the mint ratio of silver to gold was such as generally to undervalue silver and thus keep it out of circulation. The metallic currency consisted of guinea pieces (= 21 shillings) and multiples and subdivisions thereof, and of silver coins from the crown (= 5 shillings) down. Of the silver coins, only the underweight coins remained in circulation. Except for coins surviving from ancient issues, the sovereign (= 20 shillings) was only a money of account. English coin could not legally be melted down unless underweight, and was not legally exportable, and gold bullion was exportable only subject to oath that it had not been obtained by melting down English coin. The metallic currency was supplemented by Bank of England notes in denominations of £5 or over, redeemable in specie upon demand, and by country bank notes, also in denominations of £5 or over, payable upon demand in specie or in Bank of England notes. London bankers had in 1793 voluntarily ceased to issue their own notes. Outside of the London area the Bank of England notes circulated freely only in Lancashire, where the local banks did not issue notes but where bills of exchange of small denominations were extensively employed as a medium of exchange. Bank deposits subject to check were also in existence, and constituted a part of what would today be regarded as the circulating medium, although this was not yet widely recognized. Checks payable to order had only recently come into common use even in London and only for large payments. The private or non-governmental deposits at the Bank of England were small in amount throughout the Restriction period, and for the years after 1806, for which alone their precise amounts are known, they reached a yearly average of £2,000,000 in only one year.*25 In the provinces also deposits seem to have been relatively unimportant, and to have been drawn upon mainly for cash, but the available evidence on this point is conflicting.*26



The central issue of the controversy was made to turn on the question of whether the paper pound was depreciated, the bullionists insisting that it was depreciated, and most—though not all—of the anti-bullionists denying this. The answer to such a question obviously depends on how "depreciation" is defined, and the controversy suffered from a constant tendency to degenerate into merely terminological issues. As one bullionist writer caustically remarked: "Whether reduction of prices [of paper in gold] be depreciation or not, or equivalent to it, is a verbal question very fit to be argued in 'Change Alley.'"*27 But always present, even when not clearly brought into the foreground of the discussion, were genuine and important issues of fact and policy.


For the bullionists the paper currency was depreciated if issued to excess, and many of the anti-bullionists also accepted this quantitative criterion of depreciation, or at least did not explicitly reject it. Defining depreciated currency as a currency issued to excess might seem merely to substitute one term of doubtful meaning for another. But the question, What is the proper amount of currency a country should have? Is an important one. To this question, as Hollander points out,*28 Adam Smith had given no answer beyond saying vaguely that it was determined by "effectual demand,"*29 and the participants in the bullionist controversy were the first seriously to tackle it. The bullionists argued, or more often simply asserted, that a circulation exceeding in amount what, under otherwise like conditions, could have been maintained under a metallic standard, was in excess. There was little express objection to this criterion of a properly-regulated currency during the inflation phase, and serious discussion of its adequacy came only with the deflation phase of the controversy.


During the inflation phase the main issue in controversy was as to the proper method of determining the existence of excess of issue. The chief test of excess issue used by the bullionists was the existence of a premium on bullion over paper currency, although since they held that the level of prices was determined by the amount of currency and that the amount of premium of bullion over paper and the amount of discount of sterling exchange from the metallic parities were closely related, they also held that a relative rise of prices in England as compared to abroad and a fall in the sterling exchanges below parity were evidence of depreciation. The bullionist position was well expressed by Boyd: "The premium on bullion, the low rate of exchange, and the high prices of commodities in general, [are]...symptoms and effects of the superabundance of paper."*30 Their conclusions rested on the following reasoning: the rate of exchange between two currencies depended solely or mainly on their relative purchasing power over identical transportable commodities in the two countries; on quantity theory of money grounds, prices in the two countries depended on the quantities of money circulating therein; the price of bullion in paper currency was governed by the exchange rates with metallic standard currencies; therefore, if the exchanges were below metallic parity, and if there was a premium on bullion over paper, this was evidence that prices were higher in England, and the quantity of currency in circulation greater, than would have been possible under the metallic standard prevailing prior to suspension of convertibility.*31


While Wheatley and Ricardo held that the relative rise of the prices of particular commodities in England, as compared to the prices of the same commodities in foreign countries having metallic standard currencies, would be proportional to the degree of excess of the English currency, they did not suggest that the existence of excess issue could in practice be tested by such price comparisons.*32 The notion of an index number was still in its infancy. Evelyn had published his crude index number of English prices for the preceding two centuries in 1798, and Wheatley had commented on it in laudatory terms.*33 But no current index number yet existed for England, and there was but little information as to the prices prevailing in other countries. To Ricardo, moreover, it seemed an absurd notion that the trend of prices in general, or of the general purchasing power of money, could be measured. Since prices fluctuated even under a metallic standard, he conceded that their fluctuations under an inconvertible currency could not be attributed solely to changes in the degree of excess of the currency. The only test from English prices alone of the existence of depreciation which he could consistently have accepted, therefore, would have been a comparison of the prices prevailing under inconvertibility with the prices which would have prevailed under convertibility, other conditions remaining the same, and in his treatment of arguments from price data Ricardo always adhered to this position.*34 But Ricardo held that since the premium on bullion measured the degree of excess of the currency,*35 it measured also the degree in which prices at anytime, say 1810, during the suspension of cash payments were higher, not than they had been in 1797, but than they would have been in 1810 if the currency were in 1810 at the amount which could then have been maintained in circulation under a metallic standard. Ricardo, however, put much stress on the question of the extent of the depreciation, as providing an answer to the question of how great a reduction in the currency would be needed to end the depreciation.



The bullionists were prepared to make several qualifications to this reasoning and therefore to concede that the existence of a premium on bullion over paper, or of a discount of sterling exchange from metallic parity, was not an absolute proof of excess issue, and was strong presumptive evidence of excess issue only if it was substantial and prevailed for a considerable period of time.


There was first the question as to whether the price of gold or the price of silver bullion should be taken as the test. Since the bullionist comparison was always with the amount of circulation possible under the metallic standard prevailing in 1797, and since it was generally, though not universally, agreed that England had then been in fact on a gold standard basis, the bullionists preferred to use the price of gold as their test. There were fairly substantial variations in the relative prices of gold and silver on the English market, and therefore also in the extent of the premiums over paper which they respectively commanded. But as during this period a substantial premium on the one was always accompanied by a substantial premium on the other, it did not matter for practical purposes which was taken as the test of the existence of excess currency, although it would have mattered if what were in question was the degree of excess.


Secondly, when the bullionists used the exchange rates as an alternative or supplementary test of the existence of depreciation, they conceded that since even under a metallic standard the exchanges could fall below the mint parity to the limit of the cost of shipping bullion, a fall in the exchanges which did not go beyond this limit was not proof that there was excess of currency under inconvertibility.*36 Moreover, whereas England had been on a gold standard basis prior to the Restriction, Hamburg, Amsterdam, and Paris, the most important quotation points for the exchanges during the Restriction, were on a silver standard basis. Ricardo and other bullionists pointed out that since the relative values of gold and silver were not constant, the exchange parties between gold and silver currencies also were not constant, and that in computing the deviation of, say, the London-Hamburg exchange from parity it was necessary to make allowance for any alteration in the relative market values of the two metals. But the general trend of the price of silver as compared to gold was downward during the later stage of the controversy, and Ricardo pointed out that comparisons of the trend of the Hamburg exchange during the Restriction period which used the prevailing rate before the Restriction as the base therefore underestimated the extent of the real fall in the exchange value of English paper currency in terms of gold bullion abroad.*37


Thirdly, even before 1797, English gold coin, or bullion derived therefrom, was not legally exportable, and at a time when the exchanges were against England exportable bullion would command a premium over its mint price in coin or in paper. Ricardo and other bullionists insisted, however, that the prohibition of export of English coin or bullion could not be successfully enforced and that a small premium would in practice suffice to compensate for the risks involved in melting and false swearing, or in smuggling English bullion out of the country. They conceded that a premium on gold not exceeding this risk-premium was not necessarily indicative of excess. Bullion also could command a premium over coin and paper even under convertibility if the coinage was generally underweight as compared to its nominal standard, and for this also the bullionists were willing to make allowances. But the gold coinage was in good condition in 1797, and only a minor allowance was called for on this account.*38 The bullionists tended to agree that 5 per cent premium on gold was ample allowance for both these factors, and it seems that in the years prior to 1797 the premium on gold at no time exceeded this except in isolated and special transactions.*39


Fourthly, the bullionists recognized that the substitution in England of paper for gold and the export of the displaced gold would tend to result in a rise of prices in other countries in terms of gold, and that England could share in this rise of prices, and could therefore circulate a greater quantity of currency than before, other things remaining the same, without suffering a premium on gold or fall in the exchanges.*40 They did not attach any importance to this factor, however, presumably on the ground that any such release of gold would be negligible in comparison to the world supply.*41 Since to the extent that this consideration had weight it would tend to make the bullionists' tests of excess as they defined it too generous rather than too exacting, the anti-bullionists also made no use of it, although it became an important element in the controversy of the deflation period.



In addition to the qualifications which the bullionists themselves made to their argument that the existence of a premium on bullion over paper, or a fall of the exchanges below the metallic parity, was a demonstration of the existence of excess issue as compared to what could have been maintained in circulation under convertibility, there were other valid qualifications which they either deliberately abstracted from or overlooked.


Throughout the controversy, currency was generally taken to mean metallic money and bank notes, bank deposits either being overlooked or else held not to be currency. It would, of course, be possible for bank notes to depreciate even if drastically reduced in volume if at the same time deposits were increased in relatively even greater degree. But unless there was reason to suppose that mere departure from convertibility would result in a change in the relative importance of currency proper and bank deposits, the failure to give consideration to the latter would be of no significance for the main theoretical issue in controversy.


Similarly, a currency might depreciate because of an increase in its velocity of circulation, its amount meanwhile remaining constant or even falling. This was generally recognized at the time, but it was tacitly assumed, then and later, not that velocity remained constant—for it was known that it was subject to variation with the state of business confidence, with improvements in the means of communication, and with the development of clearinghouse and other arrangements for "economizing currency,"*42 but that velocity would not be altered merely by the suspension of convertibility. If changes in velocity due to changing degrees of confidence in the future of the currency be disregarded, this assumption could not be expected to be a source of serious error. Under convertibility the actually circulating medium, if deposits and bills of exchange be disregarded, was partly coin, partly paper; under inconvertibility it was wholly paper. It is conceivable that individuals would tend to hold smaller cash balances in proportion to the volume of their transactions if the currency was paper than if it was coin. Holding of paper involved risk of loss through fire, or through failure of the issues. Paper money could be shipped from one point to another more promptly, more safely, and if in small quantities more economically, than could specie, for paper money could be sent by post, whereas specie remittances required private couriers, who had to be convoyed because of the danger of robbery on the highways. This would tend to lead to the holding on the average of larger cash balances relative to volume of transactions if the currency were specie than if it were paper.*43 But it seems doubtful that this could have been an important factor.


On both a priori and empirical grounds, however, velocity should be expected to rise as the volume of means of payments and the price level was rising, and thus measurement of the percentage of excess of currency from the percentage of discount of paper in terms of gold would tend to exaggerate the degree of excess during rising prices and to underestimate it during falling prices.


A more serious qualification to the validity of the bullionist position lies in the fact that under inconvertibility speculative anticipations of depreciation or appreciation of the currency would affect the willingness of individuals to hold the currency and would thus influence its velocity of circulation and its value in relation to gold, to foreign currencies, and to commodities, independently of the effects of variations in its quantity. In modern times, as we now know only too well, such speculative factors can dominate for an appreciable length of time the metallic or exchange value of an inconvertible paper currency. There is every reason to believe that such speculative factors were also operative in some degree during the period of the bullionist controversy.


Both the bullionists and the anti-bullionists were aware of the possibility that speculative factors were influencing the value of the paper pound. Neither side, however, openly charged—or conceded—that such factors were an actual influence in lowering the value of the paper pound. It may be that neither side was altogether frank in dealing with this question, which under the circumstances prevailing was a delicate one. The anti-bullionists could not maintain as they did that the management of the currency was beyond criticism and at the same time admit that there was sufficient lack of confidence in its immediate future to lead to flights from the currency to hoarded bullion, to commodities, or to foreign currencies. The bullionists, on the other hand, may have feared that if they made such a charge they would lay themselves open to attack on the ground that they were attempting to bring the national currency into "discredit" at a time of national emergency, and therefore may have refrained from saying all that they believed, although I have not found any evidence of this. In any case, the bullionists, whether from discretion or from conviction, took pains to concede that the paper currency was not "discredited."


Silberling and Angell misread into the bullionist writings in general the positive charge that the depreciation of the paper pound in relation to bullion was in part at least a "qualitative" depreciation, and they find something absurd in such a charge. Silberling claims to find in Ricardo's writings the doctrine, which he clearly regards as a strange one, that the "fall" in paper money was due to "a mere inherent debasement in quality" of the paper currency rather than to its issue to excess. He concedes that "debasement" could readily be translated into "excess," if by excess is meant the amount exceeding the quantity at which the price of gold in paper would be at its mint par.*44 But Ricardo repeatedly and uniformly insisted that he meant just this by excess.


Angell follows Silberling in finding among the bullionists adherence to the notion of a qualitative depreciation of the currency, and in treating it as an absurd notion, but his interpretation of the bullionist position in this connection is different from Silberling's. Angell claims that Boyd, Ricardo, and other bullionists held that an excess of currency led first to "a positive degradation of the standard" and that this degradation in turn led to a rise in prices, "the degradation thus being a distinct and 'intermediate' step between the increase in currency and the rise in prices."*45 Angell gives no specific references to Ricardo, but he refers to the following passage in Boyd:

He would say, that not only the currency of the country had been changed from a certain to an uncertain standard, but that the quantity of it, in all probability, had been greatly augmented by the issuing of paper, without the obligation of paying it on demand, and that thus the prices of all objects of exchangeable value necessarily feel the influence of a positive degradation of the standard, and of a probable augmentation of the quantity of money in the country, any one of them amply sufficient to discount for a considerable rise, but both united, adequate to still greater effects than any that had already been produced.*46


Boyd here clearly assigns to "degradation" a distinct influence on prices over and above that resulting from any increase in the quantity of the currency. But there is no trace here of the time-sequence imputed to him by Angell. The context shows that the word "positive" which qualifies "degradation" is to be understood to mean "certain," as contrasted to the "probable" increase of the amount of the currency. At the time Boyd wrote no report had been made as to the issues of the Bank since the Restriction, and increase in such issue could be only a matter of inference from circumstantial evidence. The question remains, what did Boyd mean by "degradation"? No light is afforded by the context, but a reasonable explanation which makes his position intelligible is made possible by reference to a doctrine of other contemporary writers. Henry Thornton in 1797 had argued that the quantity of notes which it was proper at any time to issue depended much "on the state of the public mind, that is, on the disposition of persons to detain them." Thus an impairment of the general credit "while Bank notes sustain their credit" would make possible, and desirable, an increase of the issue of notes without any impairment of their value.*47 In 1802 he repeated this argument and supported it by reference to the effect of confidence in the paper money on the velocity of its circulation and on the size of the cash balances generally held by individuals.*48 He pointed out, moreover, that while paper was falling in value, foreigners generally would expect "that the paper, which is falling in value, will, in better times, only cease to fall, or, if it rises, will experience only an immaterial rise, and this expectation serves of course to accelerate its fall."*49 Thus the suspension of cash payments could conceivably result in a premium of bullion over paper even if no increase in the issue of paper had occurred. But Thornton denied that the loss of confidence in the English currency which could bring this about had occurred.


Lord King and George Woods expressed similar views:

But when the obligation to pay in coin ceases, the currency no longer retains this determinate value, but is in danger of being depreciated from two different causes; viz., by want of confidence on the part of the public, and an undue increase of the quantity of notes.... Though the persons who have the regulation of a currency not payable on demand should confine their issues within the most just and reasonable limits; yet if their credit or solvency is doubted, it is impossible that their notes can circulate at the full nominal value.*50

Whether the depreciation of bank notes be owing to excess of issue or to the ticklish foundation upon which their present validity is built, the ever-varying standard of public opinion, the fact itself... [i.e., of depreciation of paper in terms of bullion] is undeniable.... If it be alleged that the issues of the Bank, compared with the wants of the public, are not greater now than formerly, I answer, that this reasoning may imply a decreased confidence in the Bank of England, but that it does not throw the smallest light upon the question of depreciation.*51


Ricardo likewise disclaimed any belief that in 1810 lack of confidence in the paper pound was a factor in its depreciation: "I am not aware of any causes but excess, or a want of confidence in the issues of the paper (which I am sure does not now exist), which could produce such effects as we have for a considerable time witnessed."*52


The bullionists on this point were in error. Their error, however, lay not, as Silberling and Angell claim, in attributing some of the depreciation of the paper pound to loss of confidence in it, but in their refusal to do so, although this refusal may have been due to prudential considerations. For as Horner and Ricardo later acknowledged,*53 some of the sharp fluctuations in the premium on gold could not be adequately explained as due to corresponding fluctuations in the quantity of paper money, and could be adequately explained only with reference to changes in anticipations as to the future of the paper pound, resulting in changes in willingness of Englishmen to hold cash balances in paper and of foreigners to hold securities payable in sterling.


The bullionist position is open to one further correction, but one of probably minor practical importance. Under a metallic standard, if due to foreign remittances or abnormally heavy grain imports there occurs a temporary rise in the relative demand for foreign bills, an export of specie will tend to occur, which will operate both to lower the amount of the domestic circulation and directly to increase the supply of foreign bills by the amount for which the exported specie itself can be exchanged. Under an inconvertible currency which has been on a depreciated basis for some time, so that all the bullion has already either been exported or passed into more or less permanent hoards, there will be no specie export to constitute a direct equilibrating element in the international balance of indebtedness. With the same volume of foreign remittances to be made, a greater contraction of the currency, therefore, will be necessary under inconvertibility than under a metallic standard if the exchanges are to be kept from falling by more than the cost of shipping gold, and conversely, a fall of the exchanges by more than the cost of shipping gold will not be absolute proof that the currency has been contracted in less degree than would have been necessary if the standard were metallic.



By no means all of the anti-bullionists were willing to accept as the criterion under all circumstances of the proper amount of currency that amount which could circulate under a metallic standard, and to concede, therefore, that if it could be shown that the circulation was actually greater than could be maintained under a metallic standard the currency would thereby have been demonstrated to be in excess. But criticism of the bullionist position based on rejection of the metallic standard as the best criterion for regulation of the currency became much more widespread and important during the deflation period than it had been during the period of rising prices, and it will be convenient therefore to postpone an examination of such criticism.


The anti-bullionists often attempted to show from statistics as to Bank of England note issues either that the issues had not increased or that there was no relation in time or degree between the fluctuations in issue and the fluctuations in the premium on bullion or the exchanges. But Ricardo was able to show that even if the data were as alleged—as they often were not—they did not refute his argument. He was claiming not that the currency had been increased during the Restriction, but that it existed in an amount greater than could have been maintained at that time, other things remaining the same, if convertibility had been maintained. Whether the amount of actual issue in say 1810 was greater or less than in 1797 was beside the point if it was greater than could have been maintained under convertibility in 1810:

I do most unequivocally admit, that whilst the high price of bullion and the low exchanges continue, would to me be no proof of our currency not being depreciated if there were only 5 millions of bank notes in circulation [as compared to about 10 millions in 1797 and 23 millions in 1810]. When we speak, therefore, of an excess of bank notes, we mean that portion of the amount of the issues of the Bank, which can now circulate, but could not, if the currency were of its bullion value.*54


Some of the anti-bullionists contended that to prove depreciation it was necessary to prove that gold coin commanded a premium over paper, since bullion was only a commodity and its price therefore of no special significance.*55 Since it was unlawful to melt or export English coin, and since persons buying such coin at a premium would come under suspicion of intent to violate the law, it is not surprising that there were no open dealings in gold coin at a premium over paper.*56 What happened was that the full-weight coin quietly but rapidly passed out of circulation and was either exported on government account or went into hoards or into the melting pot for industrial use or for illegal export abroad. As Ricardo pointed out, if the law against melting and export had been repealed, gold coin and gold bullion would have commanded the same premium over paper money;*57 on the other hand, if the law against melting and export could have been fully enforced, exportable bullion would have commanded the same premium over coin and paper money.*58



The anti-bullionists, however, had a more serious objection to raise against the acceptance of the premium on bullion over paper as a proof of excess currency. It was agreed on both sides that under an inconvertible as under a convertible standard the price of bullion was governed by the foreign exchanges. Both sides were also agreed that under convertibility the exchanges could not ordinarily fall below the gold export point, since below that point, representing by its distance from mint parity of the two currencies the cost of transmitting bullion, it would be more profitable to ship bullion than to buy foreign bills. The anti-bullionists argued, however, that under inconvertibility this limit to the fall in the exchanges did not exist; that the exchanges and the premium on bullion would be governed solely by the state of the balance of international payments;*59 and that in a period when heavy military remittances and extraordinary importations of grain because of deficient English harvests had to be made, there was no definable limit beyond which the exchanges could not fall or the premium on bullion rise without demonstrating that the currency was in excess.


In their treatment of this crucial issue, the bullionists were divided into two groups, offering different answers. One of these groups consisted of only two men, Wheatley and Ricardo.*60 To the argument that foreign remittances would under inconvertibility operate to depress the exchanges, Wheatley and Ricardo both replied that foreign remittances would have no effect on the exchanges whether under convertibility or inconvertibility; in both cases, they maintained, the demands of England and the rest of the world for each other's products would so adjust themselves automatically to the remittances that they would be transferred in goods without changes either in relative prices or in exchange rates. If under inconvertibility, therefore, there appeared a depreciation of sterling exchange, this was evidence of excess issue of currency. Ricardo later made some minor concessions to his critics,*61 but Wheatley adhered rigidly to this doctrine to the end.*62 The other bullionists took an intermediate position. They conceded that foreign remittances would affect the exchange rates, and conceded also, though without adequately explaining why, that while such remittances were under way a premium on bullion and exchanges below parity were not proof that the amount of currency in circulation was in excess of what could be maintained under a metallic standard currency. They confined themselves to the argument that a continued and substantial premium of gold over paper, and fall of the exchanges below parity, established strong presumptions that the currency was in excess of what could be maintained under a metallic standard. The Bullion Report, for instance, cited the persistence of a high premium on gold and low foreign exchanges "for a considerable time" as the evidence pointing to the existence of excess currency.*63


It is arguable that the above account exaggerates the difference between Ricardo and the other bullionists, although the publications of the latter and Ricardo's correspondence show that they were conscious of their existence and were unable to reach a mutually satisfactory reconciliation. Ricardo could very rarely interest himself in the immediate and transitory phases of an economic process sufficiently to trace it in detail through its successive stages, and he frequently confined his analysis to the end results, either passing over without mention or even denying the existence of the intermediate stages. Ricardo, moreover, tended to omit at times explicit mention of qualifications whose validity he was prepared to acknowledge, if he regarded these qualifications as of minor importance or if he had already in some other connection conceded them. The result of these two habits was a rigor and a precision in his formulation which perhaps gave added force to his exposition when he was dealing with the general public, but which enabled more sophisticated critics to expose him to rebuttal often more damaging in appearance than in fact. These characteristics of Ricardo's methods of thought are now familiar to economists, and Ricardo was to some extent conscious of them himself.*64 They are well illustrated by the following passages from Ricardo, of which the first appears to involve an absolute denial of the existence of intermediate stages in the process of international adjustment to a currency disturbance, while the second recognizes their existence but reveals that his interest lay wholly in what occurs after they have fully worked themselves out:

To appears perfectly clear, that a reduction of bank notes would lower the price of bullion and improve the exchange, without in the least disturbing the regularity of our present exports and imports.... Our transactions with foreigners would be precisely the same....*65

I am not disposed to contend that the issues of one day, or of one month, can produce any effect on the foreign exchanges; it may possibly require a period of more permanent duration; an interval is absolutely necessary before such effects would follow. This is never considered by those who oppose the principles of the Committee. They conclude that those principles are defective, because their operation is not immediately perceived.*66


After a time Ricardo gave way somewhat to the pressure of dissent from his views not only by the anti-bullionists but by the bulk of the bullionists. In response to criticism by Malthus, he conceded that when remittances were under way the currency in the remitting country would be in excess unless it were reduced in the proportion which the commodity export surplus constituted of the total stock of goods in that country, which still implied that the remittances could be effected under a convertible standard, or without depreciation of the currency under an inconvertible standard, without involving a relative fall in the level of prices in the remitting country.*67 He later introduced into his exposition qualifying words and phrases of a kind not to be found in his first writings and which brought him closer to the position of the other bullionists.*68


The bullionists other than Wheatley and Ricardo conceded that extraordinary remittances would affect the exchanges adversely, but insisted, as against either the express denial of or the failure to give consideration to this factor by the anti-bullionists, that the quantity of note issues, through its effect on commodity prices, and thus on the trade balance, was an additional factor determining the exchange value of the English currency, and ordinarily would be the dominant factor.*69 Perhaps the best brief statement of the moderate bullionist position was the following by Malthus:

The real state of the case seems to be, that though the effects of a redundancy of currency upon the exchange are sure, they are slow, compared with the effects of those mercantile transactions not connected with the question of currency; and, while the former of these causes is proceeding in its operations with a steady and generally uniform pace, the more rapid movements of the latter are opposing, aggravating or modifying these operations in various ways, and producing all those complex, and seemingly inconsistent, appearances, which are to be found in the computed exchange.*70


Wheatley and Ricardo, it appears to me, were clearly wrong in their denial that extraordinary remittances would operate to depress the value of the English currency on the exchanges and in their insistence that in the absence of currency changes the demands of England and the rest of the world for each other's products would necessarily so immediately and completely adjust themselves to extraordinary remittances as to result under both a metallic and an inconvertible paper standard in the maintenance of equilibrium in the balance of payments without the aid of specie movements, changes in the relative level of prices in the two areas, or movements of the exchange rates. The theoretical grounds for holding these views to be erroneous are presented at length in a later chapter.*71 Silberling and Angell, moreover, have shown, in the case of Silberling by a comparison of the English foreign remittances with the price of silver in English paper currency, and in the case of Angell by a comparison of the premium on silver and the Hamburg exchange, that there was a close correlation between these remittances and the status of the English currency. These comparisons are reproduced in table I and chart I. Adequate data do not exist to permit a tabulation of the international balance of payments of Great Britain for the period, or even of its trade balance. In the absence of such data, it is reasonable to assume that the extraordinary remittances are a fair presumptive index of the degree of pressure operating to force upwards the foreign exchanges and the price of silver in terms of English paper currency. The correlation shown is in fact closer than could reasonably have been expected, given the partial character of the data made use of for the purpose of the comparison, and I know of no equally striking results from similar comparisons for other countries or periods. Whether by design or by accident the English paper currency remained at or near parity with silver and with foreign metallic currencies in the years in which no, or small, foreign remittances had to be made, and departed from parity in roughly corresponding degree in the years in which heavy foreign remittances were necessary.*72

Chart. Click to enlarge in new window.

TABLE I (data of Chart I)
Year Extraordinary remittancesa
(In Millions of Pounds)
Price of Silverb
(Par = 100)
Exchange on Hamburgc 36s. banco = 100
1795...  9.4 102.4 107
1796...  7.0 104.2 106
1797...  1.6 101.7  98
1798...  0.3  99.0  96
1799...  3.4 105.1 103
1800... 11.3 111.2 113
1801... 12.0 115.9 113
1802...  1.5 109.5 109
1803...  0.3 107.8 105
1804...  0.7 107.0 101
1805...  4.5 107.1 103
1806...  1.8 110.0 105
1807...  2.6 109.7 104
1808...  6.6 107.2 106
1809...  9.1 110.2 121
1810... 14.1 114.4 120
1811... 13.8 121.1 144
1812... 14.8 128.0 128
1813... 26.3 138.2 130
1814... 23.1 126.4 119
1815... 11.9 118.4 114
1816...  2.9 102.3 100
1817...  4.4 105.4 102
1818...  8.9 111.6 105
1819...  2.2 107.2 102
1820...  0.7 101.5 ...
a Silberling. "Financial and monetary policy of Great Britain," Quarterly journal of economics XXXVIII (1924), 227. (Government remittances to Continent plus value of grain imports into Great Britain in excess £2,000,000.)
b Ibid. (Spanish silver dollars.)
c Hawtrey, Currency and credit, 3d ed., 1928, p. 335. and Reports by the Lords Committee...[on] the expediency of the resumption of cash payments, 1819, p. 330.


Ricardo could, however, have conceded to his opponents the point that extraordinary remittances tend to depress the exchanges without surrendering his main contention that actual depreciation of the exchanges was evidence of greater issue of currency than could be maintained in circulation under a metallic standard. Extraordinary remittances tend to depress the exchanges alike under a metallic and under a paper standard, but under a metallic standard this depreciation is prevented from going beyond the gold export point by contraction of the currency. If speculative factors be abstracted from, or if it be assumed that their mode of degree of operation is not affected by extraordinary remittances, then such remittances, if accompanied by equal contractions of the currency of the remitting country in the two cases, should not result in appreciably greater*73 depreciation of the exchange under a paper than under a metallic standard. It was primarily because under the paper standard the English currency was not contracted as it would necessarily have been contracted under a metallic standard that the foreign remittances resulted in such marked depreciation of the paper pound on the exchanges.


If Wheatley and Ricardo erred in their exposition of the relation under inconvertible currency between the exchange rates and the state of the balance of payments, the anti-bullionists erred more grievously. The anti-bullionists insisted rightly that under inconvertibility the exchanges were immediately determined solely by the demand for and supply of foreign bills, but failed to see that this was equally true of a metallic standard and that a very important factor determining the relative demand for and supply of foreign bills was the relative level of prices in the two countries, which in turn was determined largely by the relative amounts of currency. Many of the anti-bullionists, moreover, must have thought that in some way a fall in the foreign exchanges made possible the payment of foreign remittances without the need of a commodity export surplus. No other explanation is available of their repeated insistence that throughout the period of low exchanges England either had an unfavorable balance of payments on trade account, or else had a balance insufficiently favorable to offset the military expenditure abroad. As Ricardo pointed out, in reply to reasoning of this sort by Bosanquet, this left it a mystery how the military expenditures abroad were actually met, since specie was not available.*74


Not all the anti-bullionists, however, were confused on this point. One of them stated very compactly and clearly the possibilities under such circumstances:

[Under a depreciated paper currency] it would be literally impossible that the balance of payments should be any longer against us, because we could have no means of paying an unfavorable balance. Our receipts from, and payments to, foreign nations must therefore be reduced to an equality (or the balance must be turned in our favor) either by an increase of our exports of merchandise, a diminution of our imports and of the foreign expenditure of government, or by transfers of capital....*75


Another anti-bullionist, Herries, explained that foreign remittances could exceed the export surplus for a time if the balance was met by borrowing abroad, and, writing no doubt from first-hand knowledge, since he had been engaged in the task of making the remittances for the government, said: "This is, probably, the case, with respect to our drafts from abroad at this time:—we are borrowing money to carry on our foreign expenditure, at a high rate of interest."*76


There are passages in Silberling's critique of the bullionists which seem to indicate that Silberling also subscribes to the notion that the fall in the exchange value of a remitting country's currency can operate to supply it with foreign funds with which to meet its foreign liabilities in some other way than by stimulating its exports and restricting its imports.*77 Silberling cannot consistently fall back on the argument that a decline in the exchanges under inconvertible currency would lead to a debt-liquidating shipment of bullion, for he and Angell have characterized this as one of the erroneous doctrines of the bullionists, and especially of Ricardo. As I have elsewhere shown,*78 Ricardo distinguished carefully between an inconvertible paper currency depreciated in terms of bullion and one not so depreciated—a distinction which Silberling and Angell fail to make—and denied the possibility of bullion shipments as a part of the regular mechanism of adjustment of international balances in the case of the former. Curiously enough, both Silberling and Angell place some emphasis on bullion shipments as part of the regular mechanism of adjustment of international balances in the case of the former. Curiously enough, both Silberling and Angell place some emphasis on bullion shipments as part of the explanation of the phenomena of the Restriction period, and tacitly, and probably wrongly, assuming that the Bank of England's gold losses were mainly to the government, that when the Bank sold gold it ordinarily did not charge the market price, and that most or all of the gold exported while the Restriction was in effect came from the Bank's holdings instead of from private stocks, cite these bullion shipments as an item in the meritorious record of the Bank of England during the period of suspension of cash payments.*79


The notion that even under depreciated inconvertible paper exchange fluctuations will give rise to bullion movements as an ordinary everyday occurrence is not as absurd on a priori grounds as Silberling and Angell regard it for any inconvertible currency. While there is no internal demand for bullion for monetary purposes at a market price in excess of the mint price, there still remains an internal demand for industrial use, for hoarding, and for speculative purposes. A rise in the paper premium on bullion resulting from a fall in the exchanges will operate to induce some of the holders of bullion to offer it for sale for export. There is considerable evidence, both for the Restriction period in England and for other past and present cases of countries with depreciated paper currencies, that, where legal restrictions do not prevent, bullion moves fairly freely into and out of such countries in response to changes in its paper price.*80 It is quite conceivable that the net export of bullion from England during the suspension period was even greater than it would have been if the metallic standard had been retained, and that the absence of the direct debt-liquidating effect of bullion shipments cannot therefore be invoked as even a partial explanation of the depreciation of the paper currency.



There were among the anti-bullionists some crude inflationists for whom no amount of currency could be too great. Most of the anti-bullionists, however, recognized that there were limits beyond which it was not desirable to go in the issue of currency. What these limits were, they failed to specify, except in terms of the "needs of business." They claimed that as long as currency was issued only by banks, and was issued by them only in the discount of genuine and sound short-term commercial paper, it could not be issued in excess of the needs of business, since no one would borrow at interest funds which he did not need. If currency should perchance be issued to excess, it would rapidly return to the banks either in liquidation of bank loans or, under convertibility, for redemption in specie.*81 To this doctrine the directors of the Bank of England and prominent members of the Cabinet also subscribed, and the authority of Adam Smith was appealed to in support thereof.*82


The bullionists explicitly denied the validity of this doctrine, at least for an inconvertible currency. Thornton in 1797 had objected against the usury laws that they limited the Bank of England to a rate at which "there might be a much greater disposition to borrow of the Bank...than it might become the Bank to comply with,"*83 and in 1802 he pointed out that the extent to which the charge of interest acted as a check on the demand for discounts depended on the rate of interest which was charged; the Bank of England was prevented by the usury laws from charging more than 5 per cent, and if the prevailing rate of commercial profit were higher than that, the demand for loans would be greater than the Bank should meet.*84 Lord King put it more strongly: when the market rate of interest exceeds the bank rate, the demand for discounts "may be carried to any assignable extent,"*85 and in this somewhat extreme form it was repeated by other bullionists.*86 In a speech in the House of Commons on May 7, 1811, Henry Thornton expounded with great ability, and with interesting references to the experience of other central banks, the mode of operation of the rate of interest as a regulator of the volume of note issue. He pointed out that even John Law's bank had issued only on loans at interest, and that it was Law's error that "he considered security as every thing and quantity as nothing" and failed to see the significance of the rate at which he offered to lend.*87 Thornton argued, moreover, that during a period of rising prices the real rate of interest was less than the apparent rate; while businessmen did not generally perceive this, they did realize that borrowing at such times was usually profitable, and therefore increased their demands for loans if the bank rate did not rise.*88


Ricardo agreed with the other bullionists that the "needs of commerce" for currency could not be quantitatively defined, and that through a resultant change in prices commerce could absorb whatever amount was issued.*89 But he ordinarily denied any relationship between the rate of interest and the quantity of money, and presumably also between the rate of interest and the demand for loans: "Whilst the Bank is willing to lend, borrowers will always exist, so that there can be no limit to their overissues, but that which I have just mentioned," i.e., convertibility.*90 In a speech in Parliament he expressly denied that the rate of interest was a check to the amount of issues: "For...what the directors thought a check, namely, the rate of interest on money, was no check at all to the amount of issues, as Adam Smith, Mr. Hume, and others had satisfactorily proved."*91 Here once more Ricardo was applying long-run considerations to a short-run problem. But in his Principles we find Ricardo at one point expounding the same views as the other leading bullionists:

The applications to the Bank for money, then, depend on the comparison between the rate of profits that may be made by the employment of it, and the rate at which they are willing to lend it. If they charge less than the market rate of interest, there is no amount of money which they might not lend,—if they charge more than that rate, none but spendthrifts and prodigals would be found to borrow of them. We accordingly find, that when the market rate of interest exceeds the rate of 5 per cent at which the Bank uniformly lends, the discount office is besieged with applications for money; and, on the contrary, when the market rate is even temporarily under 5 per cent, the clerks of that office have no employment.*92


To the denial by the bullionists that the charge of interest on loans was a sufficient guarantee, irrespective of the rate charged, against overissue, the anti-bullionists apparently never attempted to reply.*93 In evidence before the Bullion Committee, Bank of England officials had emphatically denied that the security against overissue by the Bank would be reduced if the discount rate were to be lowered from 5 to 4 or even to 3 per cent. No person, they insisted, would pay interest for a loan which he did not need, whatever the rate, unless it were for the purpose of employing it in speculation, "and provided the conduct of the Bank is regulated as it now is, no accommodation would be given to a person of that description."*94


That the quantity of bank loans demanded is dependent on the rate of discount is now universally accepted by economists and need not be further argued. On the question whether or not the rate of 5 per cent uniformly charged by the Bank of England during the Restriction was lower than the market rate, there is, however, a conflict of opinion. The usury laws would operate to prevent any overt charge of more than 5 per cent, and the uniform 5 per cent rate which is often said to have prevailed during the Restriction period*95 may have been only nominally that. There is contemporary evidence that bankers found means of evading the restrictions of the usury laws. In 1818, the Committee on the usury laws stated in its Report that there had been "of late years...[a] constant excess of the market rate of interest above the rate limited by law."*96 Thornton notes that borrowers from private banks had to maintain running cash with them, and borrowers in the money market had to pay a commission in addition to formal interest, and that by these means the effective market rate was often raised above the 5 per cent level.*97 Another writer relates that long credits were customary in London and a greater discount was granted for prompt payment than the legal interest for the time would amount to.*98


More convincing evidence that the 5 per cent rate was not of itself always an effective barrier to indefinite expansion of loans by the banks is to be found in the fact that the directors of the Bank of England, although they professed that they discounted freely at the rate of 5 per cent all bills falling within the admissible categories for discount,*99 in reply to questioning admitted that they had customary maxima of accommodation for each individual customer and occasionally applied other limitations to the amount discounted.*100


Even if it were conceded that the Bank rate was never lower than the market rate of discount for the same classes of loans, it might still be low enough to permit or even to foster a wild inflation, if the Bank rate was low absolutely, and if it was the Bank rate which determined the market rate. On important classes of loans the Bank of England was a direct competitor with other lending agencies, and it was certainly important enough as a lending agency to exercise at least an important influence on the market rate. Also, by lowering its credit standards, or offering its credit to a wider range of applicants for commercial loans, it could actively promote currency expansion without lowering its interest rate below the hitherto prevailing level. It may be accepted, therefore, that the 5 per cent rate was not necessarily an adequate check to the volume of bank credit extended to commercial borrowers.


The powers of the Bank of England to expand its note issues, moreover, were not confined to its commercial discount activities. The Bank could also, and did, get its notes into circulation by advances to the government, by purchases of exchequer bills and public stocks in the open market, and by advances to investors in new issues of government stocks. Since even many of the anti-bullionists conceded that there was no automatic check to excess issue where the issues were made in connection with loans to the government, there should have been no occasion for extended controversy as to the existence of a possibility of excess issue.*101



Since bank notes were issued both by the Bank of England and the country banks, responsibility for any excess issue of paper currency could lay with either or with both. With the exception of Wheatley, who held the country banks largely responsible,*102 the bullionists were united in assigning responsibility for the excess, as between the Bank of England and the country banks, wholly or predominantly to the former. Boyd, in 1801, laid down the formula which was to be the text of the bullionists: "The Bank of England is the great source of all the circulation of the country; and, by the increase or diminution of its paper, the increase or diminution of that of every country bank is infallibly regulated."*103 His argument rested on the postulate that the country banks must keep a fixed percentage of reserves against their own note circulation in Bank of England notes, whereas the Bank of England was not subject to such a limitation.*104 In a note added to the second edition, he conceded that the country banks, by allowing their reserve ratio to fall, may have contributed independently to the then existing excess of currency, but he blamed the Restriction, which left to holders of country bank notes the possibility only of converting them into Bank of England notes with which they were not familiar, for making this fall in reserve ratio possible. He apparently believed that once this fall had taken place, the Bank of England would again have control, through regulation of its own issues, over the volume of country bank issues.*105


Thornton reached the same conclusion, that the volume of Bank of England issues regulated the volume of country bank note issues, but by a more elaborate chain of reasoning. He applied to different regions within a country the Hume type of analysis of adjustment of international balances of payments.*106 If country banks took the initiative in increasing their issues, country prices would rise; the provinces would buy in London commodities which formerly they had bought locally; there would result an adverse balance of payments on London, which would be met through shipment of Bank of England notes to London or by drafts on the balances of country banks with London bankers. The impairment of their reserves would force the country bankers to contract their note issues.*107


Thornton pointed out, however, that this did not mean that the proportion of country bank notes to Bank of England notes must always remain the same. This would hold true only if the areas of circulation of the two types of notes and also the relative volumes of payments to be made in the respective areas remained unaltered:

By saying that the country paper is limited in an equal degree, I always mean not that one uniform proportion is maintained between the quantity of the London paper and that of the country paper, but only that the quantity of the one, in comparison with the demand for that one, is the same, or nearly the same, as the quantity of the other in proportion to the call for the other.*108


Similar views were expressed by Horner,*109 King,*110 Ricardo,*111 the Bullion Committee,*112 Malthus,*113 and other bullionists.


Since the anti-bullionists denied any excess in the currency as a whole, they ordinarily showed little interest in the attempts of the bullionists to apportion responsibility for such excess. Some of the anti-bullionists agreed that convertibility of country bank notes into Bank of England notes was as effective a restriction on country bank note issue as convertibility into gold.*114 Others of them, however, apparently determined that if any blame was to be assigned it should not be to the Bank of England, denied that the amount of country bank notes was in any way dependent on the amount of Bank of England notes, and cited in confirmation the evidence of country bankers before the Bullion Committee that their reserves consisted only slightly of Bank of England notes and the apparent absence of correspondence between the fluctuations in the issues of the two types of paper money.*115


Silberling and Angell reject the bullionist claim that the country bank note circulation was dependent on that of the Bank of England notes. Silberling ridicules the notion that if prices rise in the provinces, it will result in a shift of purchases from the provinces to London: "London and the rest of England were not then, and are not now economic areas producing identical wares. If the price of iron or hops or wool rose in the provinces by reason of liberal credit accommodation to farmers and speculators, could not result in purchases from London of what London did not produce."*116 This is a valid criticism of the manner in which the bullionists expressed their argument, but leaves the essence of the argument untouched. A relative increase in country bank note issues will not lead the provinces to increase their purchases in London of country products, but it will, nevertheless, lead to a debit balance of payments of the country with London. The increase in spendable funds in the country will lead to increased purchases of London products by the provinces, and the rise in prices in the provinces will lead to decreased purchases of country products by London. When two regions have currencies convertible into each other at fixed rates and have commercial relations with each other, one of these regions cannot issue currency to any extent, irrespective of what the other does, without encountering serious exchange and balance of payments difficulties, even if the two regions do not have a single identical product.*117


Silberling and Angell object further that the explanation given by Thornton and Ricardo is unilateral, instead of bilateral; it fails to take account of the upward effect on London prices of the release by the country to London of Bank of England notes and balances with London bankers resulting from an expansion of country bank note issues. They contend, in rebuttal, that a rise in prices in the country resulting from an increased issue of country bank notes would spread to London.*118


This is a valid criticism of Thornton.*119 It is not applicable, however, to Boyd*120 or Ricardo,*121 for both of these writers took it for granted that it was necessary for the country banks to maintain constant cash reserve ratios whether in Bank of England notes or not. If the Bank of England did not increase its issues, then the country banks could not at the same time increase their circulation and maintain a constant reserve ratio. It is this assumption of constancy in the country bank reserve ratios, to which neither Silberling nor Angell refers, which is the vulnerable point in the bullionist argument. If, as Boyd conceded, the country banks allowed their reserve ratios to fall, they could, as long as their reserves were not wholly exhausted, force their issues even while the Bank of England remained passive. If they tolerated a lowering of their reserve ratio, they could bring about a new price equilibrium and a new equilibrium in the balance of payments between London and the provinces, with the circulation greater, and prices higher than before, in each area. Even if the country banks expanded rapidly and extravagantly, and the Bank of England did not follow suit, it might be some time, as Joplin later pointed out,*122 before their reserves were exhausted, and in the interval before the collapse prices would be higher and the premium on bullion greater for England as a whole. The question still remains, however, as to what were the obligations of the Bank of England in such a situation.


Silberling further supports his argument that the issues of the country banks were not dependent upon those of the Bank of England by the claim that the country bank reserves consisted mainly of balances with London private bankers, while the reserves of the London bankers "were wholly uncontrolled by law and had never been more than very moderate sums; and their ability to create credits was now but very little controlled by the Bank of England."*123 The London bankers, unless they were of a banking species hitherto unrecognized, must, in practice, have found it necessary to have on hand in case of need cash or its equivalent. But the only "cash" at the time was Bank of England notes, and its only equivalent at the time was a demand deposit with the Bank of England. The private bankers in London in fact began during the Restriction period the practice of opening accounts at the Bank of England and of rediscounting bills in their portfolios with the Bank, instead of, as before, selling exchequer bills or government stock on the open market, when they needed to replenish their cash reserves.*124 The then deputy governor of the Bank admitted to the Bullion Committee, in reply to a searching question on this point, that a considerable amount of the bills discounted with the Bank of England by the London private banks was country bank paper.*125 Willingness of the London bankers to allow their cash balances to run down would enable them to expand their credits to country banks in some degree, even if the Bank of England did not make available to them increased rediscount facilities. But since such expansion would involve a persistent drain of their cash to the Bank of England and to hand-to-hand circulation, it could not have been carried far without active Bank of England support. The Bank of England, moreover, could, by positive action, have prevented even such expansion of the volume of discounts of the London private banks as had been independent of increased discounts with the Bank of England.


Silberling and Angell fail completely to give any consideration to the proposition that while England had an inconvertible paper currency special responsibility attached to some agency, and presumably to the Bank of England as in effect a central bank, to keep the currency in good order, even if to do so it should prove necessary to countervail the activities of the country banks and the London private bankers. Silberling even goes to the length of characterizing as a "truly remarkable opinion," unfortunately, however, without indicating why, Ricardo's argument (as summarized by Silberling) that "one of the causes of the 'excess' of Bank notes was the expansion of the country issues, which had thereby narrowed the field within which the Bank's issues could circulate; the latter overflowed, in other words, a contracted channel."*126 The Bank of England, it is true, was organized as a profit-making establishment. But it enjoyed valuable special privileges, and whatever some of its shareholders may have thought,*127 it was the general opinion of the time that it also had special obligations, what we should today term the obligations of a central bank. Silberling himself refers to the Bank of England of that period as a "central bank," and states that the Bank claimed to be a "regulator" of the currency. The Bank could not plead financial inability to carry out these obligations, for the "supposedly enormous profits," to which Silberling refers in a manner clearly intended to suggest that they existed only in the imagination of the bullionists, were genuine.*128 There is nothing obviously remarkable in the proposition that a central bank should contract when the rest of the banking system is dangerously expanding, in order to check and to offset that expansion. It should, on the contrary, be obvious that there is a fatal conflict between the regulatory functions of a central bank and determination on its part to maintain, willy-nilly, its accustomed proportion of the country's banking business.*129


Silberling and Angell attempt also to demonstrate the lack of responsibility of the Bank of England for the increase in currency by an elaborate statistical comparison of the behavior of the Bank of England and the country banks. But if it is accepted that the Bank of England was a central bank, its responsibility for any excess of currency is ipso facto established, unless it can be shown that it used its powers of control to the utmost but that they did not suffice. What statistical analysis of this sort can at best show is the extent to which the actions of the other banks made it incumbent upon the Bank to exercise what powers of control it had, and in what degree and with what measure of success it did exercise them. Even such questions cannot be answered by a simple comparison of the short-term fluctuations of the two types of note issues. The Bank of England could have been wholly responsible for initiating and maintaining an inflationary trend during the period as a whole, while wholly irreproachable in its manner of dealing with short-term fluctuations about this trend. Allowance must be made, furthermore, for the changes in the areas of circulation of the two currencies and in the volume of trade and in the velocities of circulation in the two areas, and for the effects of the occasional collapses of the country bank circulation owing to discredit, before much can be learned from such comparison. These difficulties are disregarded by Silberling and Angell. But let us suppose them successfully surmounted. What then could be learned from a comparison of the fluctuations in the two types of issues?


The Bank of England could have followed any one of three alternative lines of policy with respect to the relationship between its own issues and those of the country banks, which can be distinguished as (1) regulatory, (2) passive or indifferent, and (3) sympathetic. If it followed a regulatory policy, this should show itself in a negative correlation between the fluctuations in the two types of issues, with the changes in the Bank's issues lagging behind those of the country banks. If the Bank took a passive or indifferent attitude toward the operations of the country banks, there should be no marked correlation, positive or negative, unless: (a) the country banks, either from policy or from necessity, followed the Bank of England, when there should be a positive correlation between the fluctuations in the two types of issues, with the changes in the country issues lagging after the changes in the Bank issues; or (b), both the Bank and the country banks responded to the same factors in the general situation pulling for credit expansion or contraction, when there should be positive correlation between the fluctuations in the two types of issues, with the existence and the character of a lag depending on the time-order in which London and the provinces, respectively, felt the stimuli to expansion or contraction and the rapidity with which they responded to such stimuli. Finally, if the Bank followed a sympathetic policy, there should be positive correlation between the changes in the two types of issues, but with the changes in the Bank of England issues lagging after the changes in the country bank issues. This does not, of course, exhaust the range of possible relationships, since the types of relationship distinguished above need not in practice have been mutually exclusive, but could have been present in varied and varying combinations.


From his examination of the statistical data Silberling concludes that "the quarterly cyclical fluctuations in the country notes preceded...the discounts of the Bank of England (a much more accurate measure of accommodation than their notes)."*130 If this were the case, it would indicate that the Bank of England either had followed the "sympathetic" policy toward country bank issues, surely the least defensible of all if it was its function to keep the currency in order, or had had no policy at all but had reacted in the same way as the country banks, but more slowly, to the forces operating in the country at large to bring about a currency inflation. Silberling nevertheless presents this conclusion as an important element in his exoneration of the Bank from blame.


Angell, using Silberling's data, finds that the Bank of England note circulation "was a comparatively stable element" and that "the great element of fluctuation in the volume of currency was, rather, the issues of the country banks. These issues usually expanded greatly before and during a rise in prices, while they contracted even more abruptly before and during a fall,"*131 i.e., the Bank of England followed a passive policy.


The statistical conclusions of both writers rest, unfortunately, on faulty data with respect to the country bank note circulation. There was no record of the actual amounts of notes issued, but the notes had to carry tax stamps, and all contemporary estimates were based on the official statistics of the tax stamps, sold by the government, and on the estimated average life of the notes. Country bank notes were subject to tax only upon their original issue. Subject to some complex qualifications, prior to 1810 these notes could not be reissued after three years from the date of their original issue. This limitation was removed in 1810, on the assumption that on the average the notes would, because of wear and tear, have a life of about three years. If the notes could be presumed to last, prior to 1810, on the average for three years, if after 1810 all the notes could be presumed to last for the full three years, and if the country banks always succeeded in maintaining in circulation the full amount of notes for which they had purchased stamps, then the circulation at the beginning of any quarter would be equal to the amount of notes for which stamps had been sold during the preceding twelve quarters. There was no available mode of estimating the circulation which did not necessitate making doubtful assumptions of this kind.*132 Silberling's estimate of country bank note circulation, which Angell also uses, has, moreover, a special and catastrophic defect of its own. It consists merely of the amount, for each quarter, of £1 and £5 notes for which stamps had been sold in such quarter, arbitrarily multiplied by ten, i.e., with the decimal point moved one place to the right, presumably as the result of an error in copying.*133 It bears no resemblance in its fluctuations to the other available estimates of country bank note circulation, as the following table shows:

(In Millions of Pounds)
Third quarter
of year
Based on aggregate
sales of stamps
during preceding
twelve quartersa
1807... 19.7   11.0
1808... 17.5   14.9
1809... 20.6 17.0 23.1
1810... 22.9 21.8 13.1
1811... 23.1 21.5 18.7
1812... 19.2 19.9 15.3
1813... 20.5 22.6 17.5
1814... 22.1 22.7 14.5
1815... 20.8 19.0   9.0
a Report of Lords Committee [on] resumption of cash payments, 1819, appendix F. 1, p. 396 (£1 and £5 notes only).
b Ibid., appendix F. 8, pp. 408-15; based on assumption that in any given year there would be in circulation all the notes for which stamps had been sold during that year, two-thirds of the notes for which stamps had been sold in the preceding year, and one-third of the notes for which stamps had been sold in the next preceding year. (All notes.)
c Silberling, "British prices and business cycles," loc. cit., p. 258 (£1 and £5 notes only).


Silberling claims for his series that "since this stamp duty involved expense to the issuing bankers, it is wholly probable that the volume of notes stamped each quarter affords a safe index, at any rate, of the variability of the actual issues."*134 But Silberling overlooks that the amount of stamps issued each quarter indicates at best only the amount of new notes which were issued during that quarter. Since it gives no indication of the amounts of old notes which went out of circulation during that quarter, it is a wholly unreliable index of the net change during the quarter in country bank note circulation. Silberling's series, as its method of compilation would lead one to expect, shows much greater quarter-to-quarter and year-to-year variability than do the other available estimates of country bank note circulation. These last do not indicate any appreciably greater instability in country bank note than in Bank of England note circulation. But even these other estimates are probably too defective to warrant any confidence on conclusions based on their use.*135



Silberling finds other statistical evidence of the high quality of the Bank of England's management of its affairs during the Restriction: "the Bank's loans to the State tended to expand when discounts were moderate, and vice versa. In other words, the Bank granted accommodation to the government during the war rather sparingly and according to the state of their mercantile accounts. They put the business interests foremost and assumed a primary responsibility for the maintenance of British trade and industry, which, in an essentially commercial war, was of vast consequence."*136 But as can be seen from chart II and table III, all that the data show is that there was somewhat of an inverse correlation between the short-run changes in commercial discounts and advances to the government. As they stand, the data will equally well support the conclusion that commerce got only what was left after the government's demands had been satisfied. An even more plausible explanation of the inverse correlation between commercial discounts and advances to government, because it does not involve the attribution to the Bank of England of any consistent regulatory policy, is that advances to the government supplied commerce with funds as effectively as, though less directly than, commercial discounts. When the government borrowed freely from the Bank, the borrowed funds flowed into commerce and consequently lessened the demand of businessmen for discounts.*137 But while Silberling here praises the Bank for giving commerce a preference over the government, and for treating the latter only as a residual claimant for credit, he later attacks the bullionists for their alleged failure to recognize the extent to which the Bank's expansion of its credit was due to the demands made upon it by the government.*138

Chart. Click to enlarge in new window.

TABLE III (data of Chart II)
(In Millions of Pounds)
Year Commercial paper
under discounta
Advances to the
1795...  2.9 13.3
1796...  3.5 11.6
1797...  5.4  8.7
1798...  4.5  9.6
1799...  5.4  9.5
1800...  6.4 13.0
1801...  7.9 13.6
1802...  7.5 13.9
1803... 10.7 11.6
1804... 10.0 15.0
1805... 11.4 14.5
1806... 12.4 14.6
1807... 13.5 13.7
1808... 13.0 15.0
1809... 15.5 15.7
1810... 20.1 16.4
1811... 14.4 20.4
1812... 14.3 22.3
1813... 12.3 25.8
1814... 13.3 30.1
1815... 14.9 26.5
a Report from the [commons] Committee...on the Bank of England Charter, 1832, appendix no 59, p. 54.
b Reports by the Lords Committee...[on] the expediency of the resumption of cash payments, 1819, appendix A. 5. p. 309. (Yearly averages of returns for February and August of each year.)


Angell, from the same data, derives a substantially different defense of the Bank's operations. Instead of finding that the Bank treated the government as a residual borrower, he claims, probably justly,*139 that the Bank was not a free agent in deciding the amount of credit it should grant to the government, and concludes, from his analysis of the data, that the Bank in its commercial discounts, "that part of the credit extensions over which it had independent control," exercised "a moderating policy, of restraint in boom times and of assistance in stringency.... The Bank of England, in so far as its independent and uncontrolled loan-extensions were concerned, was largely blameless."*140


What inverse correlation there was between the commercial discounts of the Bank and its advances to the government is consistent, in the absence of additional information, with a wide variety of interpretations of the credit policy of the Bank. All that can reasonably be inferred from the available data, statistical and non-statistical, with respect to the operations of the Bank is that during the Restriction period the Bank increased both its advances to the government and its commercial discounts substantially, that the increase in its commercial discounts was proportionately much greater than the increase in its advances to the government, that rising premiums on bullion, falling exchanges, and rising prices all failed to act as a check on the expansion by the Bank of its credit facilities of all types, and that the Bank directors told the truth when they insisted repeatedly that they followed no clearly-defined rule or principle in regulating their discounts except insistence that the commercial paper discounted should be "sound" and of short maturities. That the depreciation was, on modern, less exigent standards, only moderate, seems to have been due much more to the fact that the 5 per cent discount rate had become traditional and therefore was not lowered than to deliberate policy of the Bank. Even if it be granted that the Bank of England exercised a stabilizing influence, the evidence is lacking that it did so deliberately and as a matter of policy, and the record as to the premiums on bullion, the fall of the exchanges, and the rise of prices, demonstrates that it did not exercise it sufficiently, if these phenomena are regarded, as all the bullionists regarded them, as highly undesirable.


There is substantial ground for accepting Angell's plea in defense of the Bank's advances to the government that the Bank with respect to these was not a free agent. It nevertheless had much greater scope for regulating the currency through control of its commercial discounts than it made use of. Ample facilities for direct credit to private business had developed during this period outside the Bank of England both in London and in the provinces, and it is by no means clear that there was any longer any urgent need, as far as the nation's commerce and industry were concerned, for the Bank to grant any genuinely "commercial" discounts at all. Its "commercial discounts" increased, however, from 6.3 millions in 1800 to 15.3 millions in 1809 and 19.5 millions in 1810,*141 amounts which were never again reached until after 1914! The proportion of the Bank's commercial discounts to its total advances increased, from an average of approximately 25 per cent during the years 1794 to 1796 inclusive, to 33 per cent for 1797 to 1800, 42 per cent from 1801 to 1805, 50 per cent from 1806 to 1810, and 36 per cent from 1811 to 1815;*142 in 1820, after resumption, it fell to 19 per cent, a level which it appears barely to have maintained during the 1820's.*143


Even these percentages apparently minimize the extent to which the Bank's expansion of its credit facilities provided funds for use by private industry rather than by government. The government during the Restriction kept a large proportion of the advances to it by the Bank, for the years 1807 to 1816 exceeding 50 per cent on the average,*144 on deposit with the Bank, presumably as an emergency reserve. The commercial discounts, on the other hand, were in the main drawn out immediately in cash, and the private deposits at the Bank of England during the same period averaged under 12 per cent of the commercial discounts.*145 It is likely, therefore, that the funds resulting from the commercial discounts had a greater velocity of circulation and consequently, pro rata, a greater influence on the level of prices, than the advances to the government.


Angell makes some attempt to determine the responsibility of price inflation in England for the fall in the exchanges and the premium on bullion by a comparison of their fluctuations with the fluctuations in the English price level, as shown by Silberling's index number of English prices for the period, but with admittedly inconclusive results.*146 Such a comparison is by its nature without significance. Even a comparison of the fluctuations in the exchange rates with the relative fluctuations of English to foreign price levels would not yield conclusive results unless there was very marked agreement or disagreement in the fluctuations.*147


That resort to price inflation is necessary if a great war is to be financed seems to Silberling so axiomatic that without argument he makes their failure to acknowledge this one of the most heavily stressed counts in his indictment of the bullionists.*148 There is no need to debate this issue here, but several considerations of which the bullionists were aware call for notice. Contemporary writers pointed out that England had financed successfully the Seven Years' War and the American War, both of which involved fairly comparable financial strain, without resort to price inflation involving serious depreciation of the currency in terms of bullion. Napoleon financed his side of the war on a strictly metallic currency basis. There was, moreover, a substantial rise in English prices even in terms of gold and silver, and England could, therefore, have had a substantial inflation even if she had remained on the gold standard.

Notes for this chapter

The participants were distinguished as bullionists or anti-bullionists according as they accepted or rejected the appearance of a premium on bullion as a demonstration of depreciation of bank notes and mismanagement of the currency. There is, of course, no relationship between the "bullionists" of this period and the sixteenth century "bullionists" whose doctrines were examined in chap. I.
N. S. Silberling, "Financial and monetary policy of Great Britain during the Napoleonic wars," Quarterly journal of economics, XXXVIII (1924), 214-33; 397-439; ibid., "British prices and business cycles, 1779-1850," Review of economic statistics, prel. vol. V, suppl. 2 (1923), 219-62; R. G. Hawtrey, Currency and credit, 3d ed., 1928, chap. xviii: J. H. Hollander, "The development of the theory of money from Adam Smith to David Ricardo," Quarterly journal of economics, XXV (1911), 429-70; J. W. Angell, The theory of international prices, 1926, pp. 40-79, 477-503; E. Cannan, the paper pound of 1797-1821, 1919; H. S. Foxwell, preface to A. Andréadès, History of the Bank of England, 2d. ed., 1924.
Walter Boyd, A Letter to...Pitt, 1801; 2d ed., with additions, 1801. The edition of 1811, often referred to as the second edition, is merely a reprint of the first, and lacks the important additions made in the true second edition.
Lord King, Thoughts on the effects of the Bank restrictions [1st ed., 1803], 2d ed., 1804.
Henry Thornton, An enquiry into the nature and effects of the paper credit of Great Britain, 1802.
John Wheatley, Remarks on currency and commerce, 1803.
Francis Horner, review of Thornton, Edinburgh review, I (1802), 172-201; review of Lord King, ibid., II (1803), 402-21; review of Wheatley, ibid., III (1803), 231-52.
Report...from the Committee on the circulating paper, the specie, and the current coin of Ireland [1804], 1826 reprint.
An essay on the principle of commercial exchanges, 1804.
Observations upon the state of currency in Ireland, 1804.
Thoughts on the alarming state of the circulation, 1805.
Three letters to the Morning Chronicle, August-November, 1809, reprinted by Hollander as Three letters on the price of gold, 1903; High price of bullion, a proof of the depreciation of bank notes [1st ed., 1810], 4th ed. with appendix [1811], reprinted in J. R. McCulloch ed., The works of David Ricardo, 1852; Reply to Mr. Bosanquet's practical observations [1811], reprinted in Works; and three additional letters to the Morning Chronicle, September, 1810, reprinted by Hollander, in Minor papers on the currency question 1809-1823 by David Ricardo, 1932.
"Depreciation of paper currency," Edinburgh review, XVII (1811); "Review of the controversy respecting the high price of bullion," ibid., XVIII (1811).
An inquiry into the effects produced on the national the Bank restriction bill, 3d ed., 1811.
The question concerning the depreciation of our currency stated and examined, 1810.
Substance of two speeches, 1811.
Substance of speech...on the report of the bullion committee, 1811.
A defence of the conduct of the directors, 1804.
Practical observations on the report of the bullion committee, 2d ed., 1810.
The principles of currency and exchanges, applied to the report, 2d ed., 1810.
A review of the controversy respecting the high price of bullion, 1811.
This is also the conclusion of Hollander: op. cit., Quarterly journal of economics, XXV (1911), 469.
A good account is given by R. G. Hawtrey, Currency and credit, 3d ed., 1928, pp. 320-32.
See table I, p. 144, infra.
Report from the Committee of secrecy on the Bank of England charter, 1832, appendix No. 32, p. 41.
Vincent Stuckey, a country banker, testified in 1819 that in his bank the deposits were about one-third in amount of the note issues, although this proportion fluctuated. (Report from the [Commons] Committee on the expediency of the Bank resuming cash payments, 1819, p. 245.) James Pennington, writing as late as 1861, stated that "The deposits with country bankers are generally converted into notes or coin, or into a bill upon London, before ultimate payment is accomplished." ("Letter from Mr. Pennington on the London banking system," in John Cazenove, Supplement to thoughts on a few subjects of political economy, 1861, p. 50, note.) Cf., however, the statement of another writer, for which I can find no independent confirmation:

"A country bank was a kind of clearing-house, where, without any actual interchange of notes or money, the greater part of all payments between man and man was effectuated by mere transfers in the books of their bankers.... It was merely the smaller payments for wages and weekly bills which required notes." Samuel Turner, Considerations upon the agriculture, commerce and manufactures of the British Empire, 1822, pp. 54-55.
Sir Philip Francis, Reflections on the abundance of paper in circulation, 2d ed., 1810, p. 10. Cf. also, for a similar view, Mathias Attwood, A letter to Lord Archibald Hamilton, on alterations in the value of money, 1823, p. 8.
Op. cit., Quarterly journal of economics, XXV, 436-37.
Wealth of nations, Cannan ed., I, 402.
Letter to Pitt, 2d ed., 1801, preface, p. xxxi. Ricardo, by exception, sometimes put it more strongly, and referred to the existence of a premium on bullion as not merely evidence, but as proof of the existence of depreciation and excess issue. Cf. the title of his tract, The high price of bullion, a proof of the depreciation of bank notes.
This reasoning bears a superficial relationship to Cassel's so-called purchasing-power parity theory, but as will be explained subsequently (see pp. 382 ff., infra), Ricardo's stress on the particular prices of identical transportable commodities makes this part of his reasoning a truism if transportation costs and tariffs are abstracted from, whereas Cassel's doctrine, even if it be restricted, as Cassel does not restrict it, to internationally traded commodities only, instead of being a truism, is untrue. Cassel's doctrine, moreover, makes qualifications for the effect of foreign remittances which Wheatley and Ricardo expressly refused to make, and which they would have regarded—mistakenly—as fatal to their whole position if made.
Francis Horner, however, did suggest that the relative prices in England and abroad could be used as a test of the existence of depreciation of the English currency. See his review of Thornton's Paper credit, Edinburgh review, I (1802), 201.
Remarks on currency and commerce, 1803, chap. vi.
As did also at least one anti-bullionist. Cf. The substance of a speech by Castlereagh in the House of Commons, July 15, 1811, 1811, p. 15: "With the exception of the precious metals, bank notes have the same powers of purchasing all other commodities, which they would have had at this day, if no necessity for shutting up the guineas in the Bank, or for sending gold abroad in unusual quantities, had ever occurred.... Such I wish to be the sense, in which I deny that bank notes are now depreciated."
Most of the bullionists did not seriously concern themselves with the problem of how to measure the extent of depreciation but were content when they had demonstrated its existence. Cf. King, Thoughts on the effects of the Bank restrictions, 2d ed., 1804, p. 40, note: "nor will the most careful reference to the two tests of the price of bullion and the state of the exchanges enable us to ascertain in what precise degree a currency is depreciated: though the general fact of a depreciation may be proved beyond dispute." (Italics in original.)
Ricardo, it is true, maintained that the foreign exchanges could fall under the mint parities even under a fully convertible currency only if the currency was "redundant" (i.e., was in excess of what could circulate consistently with the maintenance of the exchanges at mint parity), but he apparently meant by "excess" of currency under inconvertibility only the extra excess over and above that "redundancy" which was possible under convertibility.
Reply to Mr. Bosanquet's observations, Works, pp. 321-22.
According to Mushet, a mint test of the weight of the gold coin still in circulation, made in 1807, showed on the average slightly under 1.5 per cent of underweight. (An inquiry into the effects produced on the national currency... by the Bank restriction bill, 3d ed., 1811, p. 30.) Since the lighter coins would tend to remain longest in circulation, this would indicate that little allowance on this account would be called for prior to 1797.
The Bullion Committee estimated the maximum premium on gold bullion over paper and coin which could prevail before 1797 at about 5½ per cent. Report, pp. 14-15.
Cf. Wheatley, Remarks on currency and commerce, 1803, p. 187; Ricardo, High price of bullion, Works, p. 266, note.
Cf. James Mill, Review of Thomas Smith's Essay on the theory of money and exchange, 1807, in Edinburgh review, XIII (1808), 54. But while James Mill was critical of the Restriction, at this stage he accepted many of the anti-bullionist arguments, and cannot be considered as an unqualified bullionist.
Cf. the Bullion Report, pp. 63-64.
Cf. Walter Hall, A view of our late and of our future currency, 1819, p. 70:

It is now discovered, that the activity of the circulation multiplies its actual amount, and that it is a point of more importance to ascertain the velocity of the motion than the size of the wheel; but it is probable that this also depends, in some degree, on the nature of the currency, and that were specie again to form the medium here, a larger amount of it would be required for the same operations than of the paper which it replaced.

"Financial and Monetary Policy of Great Britain," Quarterly journal of economics, XXXVIII, 425, 436.
Theory of international prices, pp. 45, 59, 60. Angell comments that "an understanding of this chain of reasoning is important because it provides the only satisfactory key to the contradictory pronouncements upon monetary theory of the later writers, even those of Ricardo." (Ibid., p. 45.)
Walter Boyd, A letter to Pitt, 1st ed., 1801, pp. 64-65. (Italics in original.)
Report of the Lords Committee, 1797, pp. 72-73.
Paper credit, 1802, pp. 65-67.
Ibid., p. 65.
King, Thoughts on the effects of the Bank Restrictions, 2d ed., 1804, pp. 5-6. King also conceded that no loss of confidence in the English currency had as yet occurred. Ibid., p. 24.
George Woods, Observations on the present price of bullion, 1811, p. 46. (Cf. also p. 184, infra.) For other instances of similar recognition of the possible contribution of speculative factors, or "discredit," to the discount on paper, see Henry Parnell, Observations upon the state of the currency in Ireland, 1804, p. 55; Bullion Report, 1810, pp. 22, 39; David Buchanan, Observations on the subjects treated of in Dr. Smith's...The wealth of nations, 1814, p. 88: "The value of a paper currency will...vary from its standard, by reason either of discredit or of excess. Where the security is defective, the value will fluctuate with the risk of ultimate loss, which may at length be such as entirely to stop its circulation...." These writers also refrained from making the positive charge that the paper currency was "discredited" in this sense. Cf. also Wheatley, Theory of money, I (1807), 97: "It is to the aggregate quantity of the currency of a country that we are to look, and not to the state and quality of its coin, for the real cause of the fluctuation in the market price of its money."
Reply to Mr. Bosanquet's observations, Works, p. 363.
See infra, pp. 201-02.
Reply to Mr. Bosanquet's observations, Works, pp. 349-50.
Cf. Henry Boase, A defence of the conduct of the directors, 1804, pp. 22-23; Substance of two speeches made by the Right Hon. N. Vansittart, 1811, p. 15; The Speech of Randle Jackson, Esq.,...respecting the report of the Bullion Committee, 1810, pp. 9 ff.
Even non-exportable bullion commanded a premium over paper and there was open trade in underweight guineas, which could legally be melted down for internal use, at a premium over paper and even over full-weight guineas. See the evidence of S. T. Binns and of W. Merle, bullion merchants, before the Bullion Committee, Report, Minutes of evidence, pp. 18, 40.
High price of bullion, Works, p. 280.
Ibid., p. 265.
Cf. Boase, A letter, 1804, pp. 22-23: "the rate of exchange is governed by the balance of exchange operations, and (great political convulsions apart) by no other principle whatever...."
There was, therefore, substantial justification for the comment of William Blake, with reference to this doctrine of Wheatley and Ricardo, that "the opinions of these gentlemen are peculiar to themselves." (Observations on the effects produced by the expenditure of government, 1823, p. 26.) Cf., however, the following from the Minutes of evidence of the Committee on the Irish circulation, 1804, p. 22, cited with apparent approval by Lauderdale (Thoughts on the alarming state of the circulation, 1805, p. 20, note):

From August, 1801, to the present time, no remittances of consequence have...been made to London in specie. Bank [of Ireland] notes, however, have never ceased, whether the specie was coming into Ireland or going out of it, whether the exchange was under par or above par, whether the balance of debt was favorable or unfavorable, to be depreciated; and the depreciation appears to have been higher when the balance of debt was more favorable, and lower when it was less so; and, upon the whole, it is evident, that the depreciation has not been influenced by the balance of debt.
See infra, pp. 140-41.
Cf. Remarks on currency and commerce, 1803, pp. 52-57; An essay on the theory of money and principles of commerce, I (1807), 64-71; II (1822), 134-35; Report on the reports of the Bank committees, 1819, pp. 20-21.
Bullion Report, p. 45.
Cf. Ricardo to Malthus, Jan. 24, 1817, in Letters of Ricardo to Malthus, 1887, p. 127.
Reply to Mr. Bosanquet's practical observations, Works, p. 360.
Ibid., Works, p. 364. He here concedes, with the Bullion Committee, that "a considerable time" may be necessary for the effects fully to show themselves, but remarks that "we should once have thought a year a considerable time, when speaking of a discount on bank notes." Ibid., p. 363, note. (Italics in original.)
High price of bullion, appendix to 4th ed., Works, p. 293.
Cf. especially his testimony before the Parliamentary Committees of 1819:

Q. Assuming that the balance of payments should be against this country, must the payment not necessarily be made either in specie or in bullion?

A. (Ricardo) It appears to me, that the balance of payments is frequently the effect of the situation of our currency, and not the cause. (Report from the [Commons] Committee, 1819, p. 141. Italics mine.)

Q. Can you therefore conclude, from the degree to which the exchange is at any moment against any country, that the whole percentage of that unfavorable exchange is owing to the amount of its circulating medium?

A. (Ricardo) A part may be owing to other causes. (Report of [Lords] Committee on resumption of cash payments, 1819, p. 200.)
Cf. Thornton, The paper credit of Great Britain, 1802, pp. 277-78:

It thus appears, that "the coming and going of gold" does not (as Mr. Locke expresses it,...) "depend wholly on the balance of trade." It depends on the quantity of circulating medium issued; or it depends, as I will allow, on the balance of trade, if that balance is admitted to depend on the quantity of circulating medium issued.

Silberling takes Hawtrey to task for characterizing the anti-bullionist position in this connection as erroneous. "Financial and monetary policy of Great Britain," loc. cit., p. 434, note. His statement that the extraordinary remittances were a "hitherto virtually ignored element in Great Britain's balance of indebtedness during the period involved" (Ibid., p. 226) is without basis, since their significance was a matter of endless debate, then and later.

"Depreciation of the currency," Edinburgh review, XVII (1811), 360.
See chap. vii, infra.
Similar results were obtained by similar methods by an anonymous contemporary writer. From a chart presenting the foreign expenditures of the government, the amounts paid for imported grain, and the rates of the exchange on Hamburg, this writer derived the following conclusions:

The exchanges are affected by two great principles of political economy, namely, by the foreign expenditure, and by the amount paid for grain imported. When, therefore, the importation of grain, and the foreign expenditure have been great, the exchange has become unfavorable, and the latter has, vice versa, increased nearly in the same ratio as the two former have diminished. In the accompanying table it will be seen, that each protruding line of demarcation, specifying the variation of the exchange, has, with very trifling exceptions, a corresponding sinus in the two lines which designate the increase or diminution of the foreign expenditure and the amount paid for imported grain.—"Two tables...illustrative of the speeches of the...Earl of Liverpool and the...Chancellor of the Exchequer," in Pamphleteer, XV (1819), 286.
Under a metallic currency the contraction of the currency takes the form, in part, of an actual export of specie, and this specie exercises a direct liquidating effect on foreign obligations which is absent in the case of a paper standard currency. To this extent, a greater currency contraction will be necessary under a paper than under a metallic standard to prevent exchange depreciation when foreign remittances of a given amount are to be made. See pp. 135-36, supra.
Reply to Mr. Bosanquet's observations, Works, pp. 334-35.
John Hill, An inquiry into the causes of the present high price of gold bullion in England, 1810, pp. 8-9.
J. C. Herries, A review of the controversy respecting the high price of bullion, 1811, pp. 43-44.
Cf. "Financial and monetary policy of Great Britain," Quarterly journal of economics, XXXVIII, p. 229, note: "We may conclude, however, that the adverse balance of military payments of itself caused no important readjustments in the volume of foreign commerce which might have compensated the rise of the exchange rates against England"; Ibid., pp. 433-34: "In the absence of data, the Committee resorted to hypothesis: if the foreign payments of the State had created marked deviations from exchange parities, this could be only a very temporary matter, since foreigners, attracted by low prices of sterling, would forthwith begin to buy British commodities and thus immediately expand British exports, with the result of readjusting the balance of payments. It happened that many erstwhile foreign buyers had other preoccupations at the moment."
"Angell's theory of international prices," Journal of political economy, XXXIV (1926), pp. 603-06.
Silberling, "Financial and monetary policy," Quarterly journal of economics, XXXVIII, 226; Angell, Theory of international prices, p. 478.
Cf. on this point, the excellent analysis of the Argentine experience in J. H. Williams, Argentine international trade under inconvertible paper money, 1880-1900, 1920.
Cf. e.g., Bosanquet, Practical observations, 2d ed., 1810, pp. 49-64; John Hill, An inquiry into the causes of the present high price of gold bullion, 1810, p. 36; Coutts Trotter, The principles of currency and exchanges, 2d ed., 1810, pp. 10 ff. In view of his subsequent prominence as an advocate of the "currency principle," it is of interest that Torrens at this period should have subscribed to the doctrine that it was impossible to issue even inconvertible paper money to excess if it were issued only upon discount of good mercantile bills. (R. Torrens, An essay on money and paper currency, 1812, p. 127.) James Mill also subscribed to this doctrine: see his review of Thomas Smith's, Essay on the theory of money, 1807, Edinburgh review, XIII (1808), 57-60.
Cf. Wealth of nations, Cannan ed., II, 287.
Report of the Lords Committee, 1797, p. 83.
The paper credit of Great Britain, 1802, pp. 287-90.
Thoughts on the effects of the Bank Restrictions, 2d ed., 1804, p. 22.
E.g., J. L. Foster, Essay on the principle of commercial exchanges, 1804, p. 113; Report of the Bullion Committee, 1810, pp. 56-57; Dugald Stewart, in a memorandum to Lord Lauderdale, 1811, first published in his Collected Works, 1855, VIII, 444; McCulloch, review of Ricardo's Proposal for an economical and secure currency, Edinburgh review, XXXI (1818), 62.

The Bank of Ireland was compelled by law to discount at one per cent below the legal maximum rate of interest. Lauderdale in 1805 commented that: "By the restriction,..., unattended with the repeal of the clause compelling discount below the legal interest, the Bank [of Ireland] was obviously exposed to all the ordor of solicitation which must naturally attend the practice of discounting at an inferior rate of interest, whilst the check on the extent to which the indulgence might be carried was completely annihilated." (Thoughts on the alarming state of the circulation, 1805, pp. 23-24.)

Substance of two speeches of Henry Thornton, Esq. On the Bullion Report, 1811, pp. 19-37.
Ibid., pp. 20 ff. This contains the essence of Irving Fisher's theory of the influence of changing price levels on interest rates. Cf. his Appreciation and interest, Publications of the American Economic Association, XI (1896, No. 4).
Cf. Reply to Mr. Bosanquet's practical observations, Works, p. 341.
Three letters on the price of gold [1809], p. 11.
Hansard, Parliamentary debates, Ist series, XL (May 24, 1819), 744. The doctrine of Hume and Smith to which he refers is apparently their denial that there is a close connection between the volume of money and the rate of interest (see supra, p. 89), a doctrine requiring qualification for the short run.
Principles of political economy and taxation, 3d ed. [1821], in works, p. 220. This passage is unchanged from the first edition, 1817.

Earlier in the same paragraph Ricardo had argued that the market rate of interest was determined, not by the Bank rate of discount, but by the rate of profits which could be made by the employment of capital, which was totally independent of the quantity or of the value of money. "Whether a bank lent one million, ten million, or a hundred millions, they would not permanently after the market rate of interest; they would alter only the value of the money which they thus issued." (Italics not in original.)

Cf., however, W. T. Comber, A view of the nature and operation of bank currency, 1817, p. 16: "These advances [of the Bank of England] did not depend, as many suppose, on the caprice of the Bank, but were regulated by the amount of cash payments on transactions, which would afford a profit to the borrower after paying an interest of five per cent to the Bank."
Report of the Bullion Committee, 1810, Minutes of evidence, p. 129. Cf. also the testimony of Dorrien, Governor of the Bank, in 1819: "The demand for discount always proceeds from the wants of the public, and if the bank were to discount at a lower rate of interest than five per cent, in my opinion there would be no greater application than if it were to discount at the present rate." Report of [Commons] Committee, 1819, p. 145.
Cf. Thomas Tooke, A history of prices, I (1838), 159: "...the market rate of interest for bills of the description which were alone discountable at the Bank ["good mercantile bills, not exceeding sixty-one days' date"], did not materially, or for any length of time together, exceed the rate of five per cent per annum."

Silberling, "British prices and business cycle," Review of economic statistics, preliminary volume V (1923), supplement 2, p. 241: "The Usury Laws fixed the maximum rate of interest and discount at five per cent, and contemporary literature indicates that this rate was, at least from 1790 to 1822, the prevailing and unvarying rate of discount throughout the country. Instead of varying their rates, the banks either granted or refused loans."

In evidence given in 1857 before a Parliamentary Committee, John Twells, a member of a London banking firm who had operated as a banker in London since 1801, stated that 5 per cent was the only rate charged by bankers during the Restriction and that no one ever thought of any other rate. (Evidence of John Twells...before the select committee, 1857, pp. 13-15.)

Report from the select committee on the usury laws, 1818, p. 3. Cf. also Ricardo, On protection to agriculture [1822], Works, p. 474: "During the last war the market rate of interest for money was, for years together, fluctuating between 7 and 10 per cent; yet the Bank never lent at a rate above 5 per cent."
Substance of two speeches, 1811, p. 20.
David Prentice, Thoughts on the repeal of the Bank restriction law, 1811, p. 14. A later writer states that: "During the war it was very customary to make loans which were to be repaid by the transfer of a sum of stock, instead of money. This was done to secure to the capitalist the market rate of interest, which was then higher than he could have legally reserved in the deed." (James Maclaren, The effect of a small fall in the value of gold upon money, 1853, p. 12.)
Report of Bullion Committee, 1810, p. 26.
Ibid., pp. 22, 24; Minutes of evidence, p. 89. Cf. also Thornton, Paper credit. 1802, pp. 179, 294; A. W. Acworth, Financial reconstruction in England, 1815-1822, 1925, p. 146.
There was some discussion as to the comparative susceptibilities to excess of issue through commercial discount and through loans to government. Some writers contended that there was no difference between the two, but most writers agreed that the latter was more susceptible to excess. Mathias Attwood presents an ingenious a priori argument in support of the greater tendency of advances to government to raise prices than of the same amount of commercial discounts, resting in effect on the greater velocity of circulation of the former (Letter to Lord Hamilton, 1823, pp. 50-56). But there are grounds for believing that during the Restriction period the advances to the government of the Bank of England had an unusually low velocity of circulation, because of the practice of the government of holding exceptionally large idle balances at the Bank of England. See infra, p. 169.
Remarks on currency and commerce, 1803, pp. 209 ff.; Essay on the theory of money and principles of commerce, I (1807), 336 ff.
Letter to Pitt, 1st ed., 1801, p. 20.
Ibid.: "The circulation of country bank notes must necessarily be proportioned to the sums, in specie or Bank of England notes, requisite to discharge such of them as may be presented for payment; but the paper of the Bank of England has no such limitation."
Letter to Pitt, 2d ed., pp. 19-20, note. Boyd seems to have thought that an increase in holdings of cash by individuals in the country was the only way in which pressure on the country bank reserves could occur. In an appendix to the second edition (pp. 42-43), Boyd prints a letter from an unnamed correspondent taking him to task for attaching insufficient weight to the country-bank notes, which, according to this letter, had probably increased in greater proportion than Bank of England notes.
Hume had noted incidentally the applicability of his analysis to the relations between the different provinces of a single country. See supra, p. 84.
Paper credit, 1802, pp. 216 ff. Thornton also argues here that if bank credit became more easily available in the country while remaining restricted in London, mercantile houses with banking connections both in the country and in London would shift some of their borrowing from London banks to country banks, would demand Bank of England notes in exchange for the country bank notes thus obtained, and would thereby impair the reserves of the country banks and force them to contract their issues.
Ibid., p. 228.
Review of Thornton, Paper credit, Edinburgh review, I (1802), p. 191.
Thoughts on the effects of the Bank restrictions, 2d ed., 1804, pp. 101-11. King stated the argument, later to be stressed by the banking school, that country banks could not issue to excess because competition among the banks to issue their own notes would prevent any individual bank from expanding. See infra, pp. 238 ff.
High price of bullion. 1810, Works, pp. 282 ff.
Report, 1810, pp. 46, 67. The Bullion Committee nevertheless cited evidence tending to show that the reserve ratios of the country banks had fallen and that their note issues had therefore risen in greater proportion than the issues of the Bank of England, even after allowance for changes in the areas of hand-to-hand circulation of the two currencies. (Ibid., pp. 68-71.) They also reached the erroneous conclusion that if country banks increased their note issues proportionately with the increase in Bank of England notes, "the excess of Bank of England paper will produce its effect upon prices not merely in the ratio of its own increase, but in a much higher proportion." (Ibid., p. 68.)
"Review of the controversy respecting the high price of bullion," Edinburgh review, XVIII (1811), 457-58.
Cf. Coutts Trotter, Principles of currency and exchanges, 2d ed., 1810, pp. 22-23.
Cf. Bosanquet, Practical observations, pp. 76 ff; Vansittart, Substance of two speeches, 1811, pp. 52-55. Bosanquet claimed that if prices rose in London as the result of increased issues by the Bank of England and its notes therefore flowed to the country, this might result in a contraction, but could never cause an augmentation, of the country bank note circulation, presumably on the ground that the Bank of England notes would necessarily displace country bank notes rather than supplement them.
"Financial and monetary policy, " loc. Cit., p. 419. Cf. Henry Burgess, A letter to the Right Hon. George Canning, 1826, p. 28: "The theory of the [Bullion] Committee...about an excess of country bank notes causing a local rise in prices and sending all people to London, to buy cheap commodities, seems to me equally luminous...Who that had a correct notion of the working of the currency, would think of sending people from a distance in the country to London, to buy corn, cattle, cheese, wool, bacon, coal, lead, iron, etc. by an excess of country bank notes, as compared with Bank of England notes." Cf. also John Ashton Yates, Essays on currency and circulation, 1827, p. 37: "The local rise of prices in consequence of an increased issue of country bank notes must be enormous in order to bring corn or iron from London to Glamorganshire or Staffordshire..."
Cf. also the answer of George Woods: "For as commodities are cheaper where the excess has not taken place than where it has, so will they be taken to that part where a higher price can be obtained. If it be said that many goods, such as those from the East Indies, can be purchased only in London, I reply: the price of luxuries is dependent upon that of necessaries." (Observations on the present price of bullion, 1811, p. 21.)
Silberling, "financial and monetary policy," p. 408; Angell, Theory of international prices, p. 46
Thornton was not unaware of the issue, but he failed to meet it satisfactorily. Cf. Paper credit, 1802, pp. 219 ff.
See supra, p. 154.
Reply to Mr. Bosanquet's observations, Works, p. 352.
T. Joplin, Outlines of a system of political economy, 1823, p. 259.
"Financial and monetary policy," loc. cit., p. 399.
Cf. Joseph Lowe, The present state of England in regard to agriculture, trade, and finance, 2d ed., 1823, appendix, p. 20.
Bullion Report: Minutes of evidence, pp. 171-72.
"Financial and monetary policy," loc. cit., p. 426.
Cf. Daniel Beaumont Payne, An address to the proprietors of bank stock [1816], in pamphleteer, VII (1816), 381: "Mr. Allardyce appears to have accurately understood, that 'it is the first and almost only duty of the court of directors, to promote the interest of the proprietors by all lawful ways and means.'"
The Bank of England did not ordinarily report its profits even to its shareholders. But in 1797 the Bank was paying a dividend of 7 per cent on its capital stock. This was maintained until 1807, when it was increased to 10 per cent. In addition, six extra dividends or "bonuses" in government stocks or cash averaging over 5½ per cent were paid from 1799 to 1806, a stock dividend of 25 per cent was paid in 1816, and the Bank's premises were enlarged out of profits during the Restriction period. The average price of bank stock rose from 133½ in 1777 and 127½ in the crisis year, 1797, to 280 in 1809. (Mushet, Effects produced on the national currency, 3d ed., 1811, pp. 68-69; J. R. McCulloch, Historical sketch of the Bank of England, 1831, p. 75.)
To the extent that there was competition for issue between the country banks and the Bank of England, it was mainly regional competition. The two currencies circulated side by side only to a very limited extent, and when a note-issuing country bank was established in a new district, Bank of England notes would ordinarily not continue to circulate freely there. If as country banks extended the area of circulation of their notes the Bank of England maintained its issue, there would tend to result an increase of Bank of England note circulation within the area of circulation remaining to it. Cf. Lord King, Thoughts on the effects of the Bank restrictions, 2d ed., 1804, pp. 102-5.
"Financial and monetary policy," loc. cit., p. 420, note; "British prices and business cycles," loc. cit., p. 243. If bank notes are rejected as a suitable measure of the "accommodation" granted by the Bank of England, they should be rejected also for the country banks.
Theory of international prices, p. 486.
The country banks would always have to keep on hand some of their notes as till money or awaiting the possibility of their issue. The notes of banks which failed or suspended payments or for other reasons ceased to issue would be withdrawn before three years from the date of their original issue had elapsed. There were still other obstacles to making reliable estimates of the country bank note circulation from the statistics of stamp sales. Cf. the testimony of J. Sedgwick, Chairman of the Board of Stamps, Report by the Lords Committee [on] resumption of cash payments, 1819, appendix F, 7, pp. 408-15.
The following data for quarters chosen at random show adequately the nature of Silberling's series:

First quarter
Number of £1 notes stamped during quartera
Number of £5 notes stamped during quartera
Total value of £1 and £5 notes stamped during quarterb
Silberling's series, millions of £c
1811... 472,075 122,399 £1,084,070 10.8
1814... 946,174 137,712   1,634,734 16.4
1818... 954,268 217,383   2,041,183 20.4
a Report of [Commons] Committes on resumption of cash payments, 1819, appendix 32, p. 330.
b Column 2 + (5 × column 3).
c Silberling, "British prices and business cycles," loc. cit., p. 258.

"British prices and business cycles," loc. cit., pp. 242-43.
Cf. Tooke, A history of prices, II (1838), 130-31.
Silberling, "Financial and monetary policy," loc. cit., p. 420, note.
Officers of the Bank testified before the Commons Committee of 1819 that when the advances to the government were large, the demand for commercial discounts was generally small. (Reports from the Secret Committee on the expediency of the Bank resuming cash payments, 1819, pp. 27, 143.)
"Financial and monetary policy," loc. cit., pp. 425-27.
Cf. Chancellor of the Exchequer Vansittart, Hansard, Parliamentary debates, 1st series, XXIV (Dec. 8, 1812), 230: "the enormous profits of the Bank had also been dwelt upon: to this he would bear testimony, that the Bank was an unwilling party to those measures whence the profits accrued, and which were forced upon it by the government of the country."
Theory of international prices, p. 486.
Some of the increase in "commercial discounts" may have been in rediscounts for London bankers, and some of it consisted undoubtedly of advances to subscribers to new issues of government stock, rather than of commercial discounts proper.
Cf. Angell, Theory of international prices, p. 498, col. 15. Angell comments that "these percentages are on the whole surprisingly low" (Ibid., p. 502) but does not indicate what his criterion of "lowness" is.
Cf. the statistics of public and private securities held by the Bank, given in the Report on the Bank of England charter, 1832, appendix no. 5, pp. 13-25.
Cf. ibid., appendix no. 24, p. 35; appendix no. 5, pp. 13 ff.
Ibid., appendix no. 32, p. 41; appendix no. 5, pp. 13 ff.
Theory of international prices, p. 484. Angell says, in this connection, that "contrary to the opinion of most contemporary writers, neither the specie premium nor the rise in the foreign exchanges were correct measures of the depreciation, if this last be measured by commodity prices. Both were much too low." Since the bullionists did not in fact measure depreciation by the trend of English commodity prices, and the anti-bullionists either denied its existence or claimed that the premium on bullion and the fall in the exchanges exaggerated the extent of the depreciation, this passage is not easy to understand.
Although Silberling's index number is a valuable contribution, it would not be satisfactory for this purpose even if a comparable Continental index number were available. Of the 35 commodities from whose prices the index is computed, only 11 are classed by Silberling as British commodities—including copper plates (or cakes or sheets) and tin blocks, essentially import commodities?—and none of these is a substantially fabricated commodity. ("British prices and business cycles," loc. cit., p. 299.) For such comparisons, it is the relative trends of the prices of "domestic commodities" which are most significant. See infra, p. 385.
Silberling's emphasis on the desirability of inflation under the then existing circumstances makes it hard to explain his anxiety to free the Bank of England from the charge that it was mainly responsible for bringing it about.

Chapter IV

End of Notes

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