just level, to become redundant, and thus is the principle that an unfavourable exchange may always be traced to a relatively redundant currency most fully exemplified. If we can suppose that, after an unfavourable harvest, when England has occasion for an unusual importation of corn, another nation is possessed of a superabundance of that article, “but has no wants for any commodity whatever,” it would unquestionably follow that such nation would not export its corn in exchange for commodities; but neither would it export corn for money, as that is a commodity which no nation ever wants absolutely, but relatively, as is expressly admitted by the Reviewers. The case is, however, impossible, because a nation possessed of every commodity necessary for the consumption and enjoyment of all its inhabitants who have wherewithal to purchase them, will not let the corn which it has over and above what it can consume, rot in its granaries. Whilst the desire of accumulation is not extinguished in the breast of man, he will be desirous to realise the excess of his productions, above his own consumption, into the form of capital. This he can only do by employing, himself, or by loans to others enabling them to employ an additional number of labourers, as it is by labour only that revenue is realised into capital. If his revenue be corn, he will be disposed to exchange it for fuel, meat, butter, cheese, and other commodities in which the wages of labour are usually expended, or, which is the same thing, he will sell his corn for money, pay the wages of his labourers in money, and thereby create a demand for those commodities which may be obtained from other countries in exchange for the superfluous corn. Thus will be reproduced to him articles more valuable, which he may again employ in the same manner, adding to his own riches, and augmenting the wealth and resources of his country. No mistake can be greater than to suppose that a nation can ever be without wants for commodities of some sort. It may possess too much of one or more commodities for which it may not find a market at home. It may have more sugar, coffee, tallow, than it can either consume or dispose of, but no country ever possessed a general glut of all commodities. It is evidently impossible. If a country possesses every thing necessary for the maintenance and comfort of man, and these articles be divided in the proportions in which they are usually consumed, they are sure, however abundant, to find a market to take them off. It follows, therefore, that, whilst a country is in possession of a commodity for which there is no demand at home, it will be desirous of exchanging it for other commodities in the proportion in which they are consumed. No nation grows corn, or any other commodity, with a view to realise its value in money (the case supposed, or involved in the case supposed, by the Reviewers), as this would be the most unprofitable object to which the labour of man could be devoted. Money is precisely that article which, till it is re-exchanged, never adds to the wealth of a country; accordingly we find, that to increase its amount is never the voluntary act of any country any more than it is that of any individual. Money is forced upon them only in consequence of the relatively less value which it possesses in those countries with which they have intercourse. Whilst a country employs the precious metals for money, and has no mines of its own, it is a conceivable case that it may greatly augment the amount of the productions of its land and labour without adding to its wealth, because at the same time those countries which are in possession of the mines may possibly have obtained so enormous a supply of the precious metals as to have forced an increase of currency on the industrious country, equal in value to the whole of its increased productions. But by so doing the augmented currency, added to that which was before employed, will be of no more real value than the original amount of currency. Thus then will this industrious nation become tributary to those nations which are in possession of the mines, and will carry on a trade in which it gains nothing and loses every thing. That the exchange is in a constant state of fluctuation with all countries I am not disposed to deny, but it does not generally vary to those limits at which remittances can be more advantageously made by means of bullion than by the purchase of bills. Whilst this is the case, it cannot be disputed that imports are balanced by exports. The varying demands of all countries may be supplied, and the exchanges of all deviate in some degree from par, if the currency of any one of them is either redundant or deficient, as compared with the rest. Suppose England to send goods to Holland, and not to find there any commodities which suit the English market; or, which is the same thing, suppose that we can purchase those commodities cheaper in France. In this case we confine our operation to the sale of goods in Holland, and the purchase of other goods in France. The currency of England is not disturbed by either transaction, as we shall pay France by a bill on Holland, and there will neither be an excess of imports nor of exports. The exchange may, however, be favourable to us with Holland, and unfavourable with France; and will be so, if the account be not balanced by the importation into France of goods from Holland, or from some country indebted to Holland. If there be no such importation, it can arise only from a relative redundancy of the circulation of Holland, as compared with that of France, and in payment of the bill it will suit both those countries that bullion should be transmitted. If the balance be settled by the transmission of goods, the exchange between all the three countries will be at par. If, by bullion, the exchange between Holland and England will be as much above par as that between France and England will be below the par, and the difference will be equal to the expenses attending the passage of bullion from Holland to France. It will make no difference in the result, if every nation of the world were concerned in the transaction. England having bought goods from France and sold goods to Holland, France might have purchased to the same amount from Italy; Italy may have done the same from Russia, Russia from Germany, and Germany within 100,000l. of the same amount from Holland; Germany might require this amount of bullion either to supply a deficient currency, or for the fabrication of plate. All these various transactions would be settled by bills of exchange, with the exception of the 100,000l., which would be either transmitted from an existing redundancy of coin or bullion in Holland, or it would be collected by Holland from the different currencies of Europe. It is not contended, as the Reviewers infer," that a bad harvest, or the necessity of paying a subsidy in one country should be immediately and invariably accompanied by an unusual demand for muslins, hardware, and colonial produce," as the same effects would be produced if the country paying the subsidy, or suffering from a bad harvest, were to import less of other commodities than it had before been accustomed to do. The Reviewers observe, page 345, "The same kind of error which we have here noticed pervades other parts of Mr Ricardo's pamphlet, particularly the opening of his subject. He seems to think that when once the precious metals have been divided among the different countries of the earth, according to their relative wealth and commerce, that each having an equal necessity for the quantity actually in use, no temptation would be offered for their importation or exportation, till either a new mine or a new bank was opened; or till some marked change had taken place in their relative prosperity." And afterwards, at page 361, "We have already adverted to the error (confined, however, principally to Mr Ricardo, and from which the Report is entirely free) of denying the existence of a balance of trade or of payments not connected with some original redundancy or deficiency of currency." "But there is another point in which almost all the writers on this side of the question concur, where, notwithstanding, we cannot agree with them, and feel more inclined to the mercantile view of the subject. Though they acknowledge that bullion occasionally passes from one country to another, from causes connected with the exchange, yet they represent these transactions as quite inconsiderable in degree. Mr Huskisson observes, that the operations in the trade of bullion originate almost entirely in the fresh supplies which are yearly poured in from the mines of the New World, and are chiefly confined to the distribution of those supplies through the different parts of Europe. If this supply were to cease altogether, the dealings in gold and silver, as objects of foreign trade, would be very few, and those of short duration."" 6 "Mr Ricardo, in his reply to Mr Bosanquet, refers to this passage with particular approbation." Now, I am at a loss to discover in what this opinion of Mr Huskisson differs from that which I had before given, and on which the Reviewers had been commenting. The passages are in substance precisely the same, and must stand or fall together. If "we acknowledge that bullion occasionally passes from one country to another from causes connected with the exchange," we do not acknowledge that it would so pass till the exchange had fallen to such limits as would make the exportation of bullion profitable; and I am of opinion that if it should so fall, it is in consequence of the cheapness and redundance of currency, which "would originate almost entirely in the fresh supplies which are yearly poured in from the mines of the New World." This, then, is not another point in which the Reviewers differ with me, but the same. If it is well known that most States, in their usual relations of commercial intercourse, have an almost constantly favourable exchange with some countries, and an almost constantly unfavourable one with the others," to what cause can it be ascribed but to that mentioned by Mr Huskisson?" The fresh supplies of bullion which are yearly poured in (and in nearly the same direction) from the mines of the New World." Dr A. Smith does not seem to have been sufficiently aware of the powerful and uniform effects which this stream of bullion had on the foreign exchanges, and he was inclined much to overrate the uses of bullion in carrying on the various roundabout foreign trades which a country finds it necessary to engage in. In the early and rude transactions of commerce between nations, as in the early and rude transactions between individuals, there is little economy in the use of money and bullion; it is only in consequence of civilisation and refinement that paper is made to perform the same office between the commonwealth of nations, as it so advantageously performs between individuals of the same country. The Reviewers do not appear to me to be sufficiently aware of the extent to which the principle of economy in the use of the precious metals is extended between nations, indeed, they do not seem to acknowledge its force even when confined to a single nation, as from a passage in page 346, their readers would be induced to suppose their opinion to be, that there are frequent transfers of currency between the distant provinces of the same country; for they tell us that "there have been, and ever will be, a quantity of the precious metals in use destined to perform the same part with regard to the different nations connected with each other by commerce, which the currency of a particular country performs with regard to its distant provinces." Now, what part does the currency of a country perform with regard to the distant provinces? I am well persuaded, that, in all the multiplicity of commercial transactions which take place between the distant provinces of this kingdom, the currency performs a very inferior part, imports being almost always balanced by exports,* and the proof is, that the local currency of the provinces (and they have no other) is seldom circulated at any considerable distance from the place where it is issued. It appears to me that the Reviewers were induced to admit the erroneous doctrine of the merchants, that money might be exported in exchange for commodities, although money were no cheaper in the exporting country, because they could in no other way account for the rise of the exchange having, on some occasions, accompanied the increased amount of bank notes, as stated by Mr Pearse, the late deputy governor, and now governor of the Bank, in a paper delivered by him to the bullion committee. They say, "according to this view of the subject, it certainly is not easy to explain an improving exchange under an obviously increasing issue of notes: an event that not unfrequently happens, and was much insisted upon by the deputy governor of the Bank as a proof that our foreign exchanges had no connexion with the state of our currency." These are circumstances, however, which are not absolutely irreconcileable. Mr Pearse, as well as the Edinburgh Reviewer, appears to have wholly mistaken the principle advanced by those who are desirous of the repeal of the restriction bill. They do not contend, as they are understood to do, that the increase of bank notes will permanently lower the exchange, but that such an effect will proceed from a redundant currency. It remains, therefore, to be considered whether an increase of bank notes is necessarily at all times accompanied with a permanently increased currency, as, if I can make it appear that it is not, there will be no difficulty in accounting for a rise in the exchange with an increased amount of bank notes. It will be readily admitted, that, whilst there is any great portion of coin in circulation, every increase of bank notes, though it will for a short time lower the value of the whole currency, paper as well as gold, yet that such depression will not be permanent, because the redundant and cheap currency will lower the exchange, and will occasion the exportation of a portion of the coin, which will cease as soon as the remainder of the currency shall have regained its value and restored the exchange to par. The increase of small notes, then, will ultimately be a substitution of one currency for another, of a paper for a metallic currency, and will not operate in the same way as an actual and permanent increase of circulation. We are not, however, without a criterion by which we may determine the relative amount of currency at different periods, as distinguished from bank notes, on which, though we cannot infallibly rely, it will probably be a sufficiently accurate test to determine the question which we are now discussing. This criterion is the amount of notes of 57. and upwards in circulation, which, we may reasonably calculate, always bear some tolerably regular proportion to the whole circulation. Thus, if since 1797 the bank notes of this descrip Part of the produce of the provinces is exported without any return, as it constitutes the revenue of absentees, but this consideration can have no effect on the question of currency. That an increase of bank notes under 51, should be considered as a substitute for the coins exported, rather than an actual increase of circulation, is often and justly maintained by those who oppose the reasoning of the bullion report; but when these same gentlemen want to establish their favourite theory, that there is no connexion between the amount of the circulation and the rate of exchange, they do not forget to bring to their aid these small notes which they had before discarded. tion have increased from 12 to 16 millions, we may infer that the whole circulation has increased one-third, if the districts in which bank notes circulate have neither been enlarged nor contracted. The notes under 5/. will be issued in proportion as the metallic currency is withdrawn from circulation, and will be further augmented if there be also an augmentation of notes of a higher denomination. If I am correct in this view of the subject, that the increase in the amount of our currency is to be inferred from the increased amount of bank notes of 51. and upwards, and can by no means be proved by an increase of 17. and 27. notes which have been substituted in the place of the exported or hoarded guineas, I must wholly reject the calculations of Mr Pearse, because they are made on the supposition that every increase of this description of notes is an increase of currency to that amount. When it is considered, that in 1797 there were no notes of 17. and 27. in circulation, but that their place was wholly filled with guineas; and that, since that period, there have been no less than 7 millions issued, partly to supply the place of our exported and hoarded guineas, and partly to keep up the proportion between the circulation for the larger and for the smaller payments, we shall observe to what errors such reasoning may lead. I can consider the paper in question of no authority whatever as opposed to the opinion which I have ventured to give, namely, that an unfavourable balance of trade, and a consequently low exchange, may in all cases be traced to a relatively redundant and cheap currency.* But if the reasoning of Mr Pearse were not incorrect as his facts are, he is no way warranted in the conclusions which he has drawn from them. Mr Pearse states the increase of bank notes from January 1808 to Christmas 1809, to have been from 17 to 18 millions, or 500,000l., the exchange with Hamburgh during the same period having fallen from 34s. 9g. to 28s. 6g. an increase in the amount of notes of less than 3 per cent., and a fall in the exchange of more than 18 per cent. But from whence did Mr Pearse obtain this information, of 18 millions of bank notes only being in circulation at Christmas in 1809 ? After looking at every return with which I have been able to meet, of the amount of bank notes in circulation at the end of 1809, I cannot but conclude that Mr Pearse's statement is incorrect. Mr Mushet in his tables gives four returns of bank notes in the year. In the last, for the year 1809, he has stated the amount of bank notes in circulation at In the Appendix to the Bullion Report, and in returns lately made to the House of Commons, the amount of bank notes in circulation appears to have been on December 12, 1809, On the 1st January 1810, On the 7th January 1810, 19,742,998 19,727,520 20,669,320 19,528,030 For many months previously to December it was not lower. When I first discovered this inaccuracy I thought Mr Pearse might have omitted the bank post bills in both estimates, although they did not in December 1809, exceed 880,8807; but on looking at the return of bank notes in circulation, including bank post bills in January 1808, I find Mr Pearse has stated it larger than I can any where find it: indeed his estimate exceeds the return made by the Bank for the 1st of January 1808, by nearly 900,000l., so that from the 1st of January 1808 to the 12th of December 1809, the increase was from 16,619,240 to 19,727,520, a difference of more than 3 millions, instead of 500,000, as stated by Mr Pearse, and of 2 millions if Mr Pearse's statement for any time in January 1808, be correct. Mr Pearse's statement, too, that from January 1803 to the end of 1807, the amount of bank notes had increased from 16 to 18 millions, an increase of a million and a half, appears to me to exceed the fact by half a million. The increase of notes of 51. and upwards, including bank post bills, did not, during that period, exceed 150,000l. It is material that these errors should be pointed out, that those who may, in spite of what I have urged, agree in principle with Mr Pearse, may see that the facts of the case do not warrant the conclusions which that gentleman has drawn from them, and, indeed, that all calculations founded on the particular amount of bank notes for a day, or for a week, when the general average has been for some time before, or some time after, greater or less, will be of little avail in overturning a theory which has every other proof of its truth. Such I consider the theory which asserts that the unlimited multiplication of a currency which is referable to no fixed standard may and must It is not meant to be denied, that the sudden invasion of an enemy, or a convulsion in a country of any kind which renders the possession of property insecure, may form an exception to this rule, but the exchange will in general be unfavourable to a country thus circumstanced." produce a permanent depression of the exchange, estimated with a country whose currency is founded on such standard. Having considered the weight which ought to be attached to Mr Pearse's paper, I beg the reader's attention to the table which I have drawn out from the statements in the Bullion Report, and from the papers which have since been presented to the House of Commons. I request him to compare the amount of the circulation of the larger notes with the variations in the exchange, and I trust he will find no difficulty in reconciling the principle maintained by me with the actual facts of the case, particularly if he considers that the operations of an increased currency are not instantaneous, but require some interval of time to produce their full effect,-that a rise or fall in the price of silver, as compared with gold, alters the relative value of the currencies of England and Hamburgh, and therefore makes the currency of one or other relatively redundant and cheap; that the same effect is produced, as I have already stated, by an abundant or deficient harvest, either in this country or in those countries with which we trade, or by any other addition or diminution to their real wealth, which by altering the relative proportion between commodities and money alters the value of the circulating medium. With these corrections, I have no fear but that it will be found that Mr Pearse's objections may be refuted without having recourse to the abandonment of a principle, which, if yielded, will establish the mercantile theory of exchange, and may be made to account for a drain of circulating medium, so great, that it can only be counteracted by locking up our money in the bank, and absolving the directors from the obligation of paying their notes in specie. Mr Pearse's statement as presented to the Bullion Committee:* 27th February 1797, Total of Bank notes. Millions. After this period, great commercial distress, large importation of corn, heavy subsidies, and the Hambro' Exchange continued falling, and on the 2d January 1801, was as low as Between the end of the year 1799 to the end of 13 1802, an increased quantity of 11. and 27. notes (13) were issued, swelling the sum total of all notes to From January 1803 to the end of 1807, From January 1808 to Christmas 1809, Rate of Hambro' 8. 35 6 38 0 37 7 29 8 to Fluctuation 161 The rate of the Hambro' Exchange is taken from Lloyd's list. to 28 6 The average amount of bank notes from the year 1797 to 1809 inclusive, in the following table, is copied from the Report of the Bullion Committee. The rates of exchange are extracted from a list presented by the Mint to parliament. There have been three returns made to parliament by the Bank of the amount of their notes in circulation in the year 1810;-the first for the 7th and 12th of each month; the second, a weekly return from the 19th January 1810 to 28th December; and the third also a weekly account from the 3d March to 29th December 1810. The average amount of notes above 57., including bank post bills, according to the first account, is I have omitted as much of Mr Pearse's paper as regarded the amount of bank notes in circulation before the restriction on bank payments, because whilst the public possessed the power of obtaining specie for their notes, the exchange could not but be momentarily lowered by the amount of the bank issues. |