Appendix. (2)

After the preceding sheets were sent to the press. I read the supplementary observations of Mr Bosanquet, annexed to the second edition of his pamphlet. I shall have but few remarks to make on them.

1st, From what I have already said, it may be seen that I deny the accuracy of all Mr Bosanquet's calculations concerning the exchange with Hamburgh. Those calculations are made on the assumption of a fixed invariable par, whilst the true par on which they should have been made, is subject to all the variations to which the relative value of gold and silver is exposed. These two metals having varied no less since the year 1801 than from 6½ per cent., under the Mint proportions, to 9 per cent. above those proportions; calculations made on such a principle may involve errors to no less an amount than 15½ per cent. 2dly, The argument attempted to be founded on the fact of the increase or diminution in the amount of bank notes not having invariably been accompanied by a fall or rise in the exchange, or by a rise or fall in the price of bullion, is of no avail against a theory which admits that the demand for circulating medium is subject to continual fluctuations, proceeding from an increase or decrease in the amount of capital and commerce, from a greater or less facility which at one period may be afforded to payments by a varying degree of confidence and credit, and, in short, which supposes that the same commerce and payments may require very different amounts of circulating medium. An amount of bank notes, which at one time may be excessive, in the sense in which I use that term, and which may therefore be depreciated, may, at another, be barely sufficient for the payments which it may have to perform, barring the effect of a temporary increase in its value above that of the bullion which it represents. It will therefore be useless to admit or to deny the correctness of the grounds on which Mr Bosanquet's calculation of the amount of country paper in circulation is founded. Those facts do not, in my opinion, bear upon the subject in dispute. Whether the paper currency be 25 or 100 millions, I consider it equally certain that it is excessive, because 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.

Mr Bosanquet has thrown the inferences which he wishes to be drawn from the facts he has newly brought forward into the shape of four problems; the solution of which, upon the principles of the Committee, he presumes to be impossible. I hope I have already shown that his facts fall abundantly short of proving the points which he makes to rest upon them, and I think the difficulty will not be great in giving him even a solution of his problems in perfect conformity with the principles of the Committee.

The first problem is, “The fall of the exchange, from an average of 6 per cent. in favour from 1790 to 1795, to 3 per cent. below par in 1795 and 1796, with an equal circulation of 11 millions of Bank paper, convertible into specie on demand, and the advance of the exchange to 11 per cent. above par, on average in 1797 and 1798, the circulation being increased to 13 millions, and not so convertible.”

The reader will perceive that this problem has already received its solution in the body of the work. The exchanges are not correctly stated, and no one denies that the exchanges may rise and fall from many causes.

It has been proved that the demand for gold for the Mint, and for silver for the East Indies, in the years 1797 and 1798, had its natural effect on the exchange, and was not counteracted by an extravagant issue of paper currency. The gold was required to fill up the exhausted coffers of the Bank; it was therefore not sent into circulation; and the addition of 2 millions in bank notes served only to supply the vacuum which the hoarding of money had occasioned; so that there was no real increase to the circulation of those years.

The second problem is, “The fall of the exchange to 6 per cent. below par, and gold 9 per cent. above the Mint price in 1800 and 1801, the Bank circulation rather above 15 millions, and the advance to 3 per cent. above par, on average of six years, from 1803 to 1808, and gold nearly at the Mint price, with an augmented circulation of 17 to 18 millions.”

Besides the effects from a varying degree of commerce and credit, it should be recollected that whilst our circulation consisted partly of gold and partly of paper, the effect of an increased issue of paper, both on the exchanges and the price of bullion, was corrected, after a sufficient interval, by the exportation of the coin. That resource has been for some time lost to us.

The third problem, viz. “The fall of the exchange, from 5 per cent. above par, in July 1808, to 10 per cent. below par, in June 1809, the Bank circulation being the same in both instances;” is of easy solution. I cannot find the document from which Mr Bosanquet has stated that the amount of bank notes was the same in July 1808 as in June 1809; but, admitting its correctness, are they fair subjects of comparison? One period is immediately after the payment of the dividends, the other immediately before. In January and July 1809 there was no less an increase in the amount of bank notes, after the payment of the dividends, than 2,450,000l., and in the January following, 1,878,000l.

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. But what are the facts respecting the circulation of bank notes in the years 1808 and 1809? There are only three returns of their amount in the year 1808 made to the Bullion Committee. Let us compare them with the returns for the same periods in 1809, and I think my readers will agree with me, that these facts will rather confirm than appear to be at variance with the principles of the Committee.

As for the fourth problem, viz. “The gradually increasing price of commodities, during the American war, when the circulation was gold, and during the six years from 1803 to 1808, when the exchange was in favour,” where has it been disputed that there are not other causes besides the depreciation of money which may account for a rise in the prices of commodities? The point for which I contend is, that when such rise is accompanied by a permanent rise in the price of that bullion which is the standard of currency, then to the amount of that rise is the currency depreciated. During the American war the rise in the prices of commodities was not attended with any rise in the price of bullion, and was therefore not occasioned by a depreciation of the currency.

We are now, for the first time, left to doubt whether the principles of the Committee, against which Mr Bosanquet in the body of his work had so strongly contended, are really at variance with his own. We are now told, not that the theory is erroneous, but “that the facts must be established before they can be reasoned upon;” “and that the importance of those facts would in no degree be lessened even by an unreserved admission of the accuracy of the principles assumed.” Does this declaration accord with Mr Bosanquet's conclusions? Certain principles are brought forward by the Bullion Committee, and which, if true, prove the fact of the depreciation of the currency. Your principles are plausible, and reason appears to sanction them, says Mr Bosanquet; but here are facts to prove that they are inconsistent with past experience; and he further observes from Paley, “that when a theorem is proposed to a mathematician the first thing he does with it is to try it on a simple case; if it produce a false result, he is sure there must be some error in the demonstration.” “The public must proceed in this way with the Report, and submit its theories to the test of fact.” Can, then, Mr Bosanquet be consistent in contending “that the importance of what, in his preceding pages, he had offered to the public would be in no degree lessened even by an unreserved admission of the accuracy of the principles assumed?”

If the theory of the Committee is allowed to be accurate on the one hand, and Mr Bosanquet's facts are accurate on the other, what follows? Either that Mr Bosanquet agrees with the Committee, or that his facts are totally inapplicable to the question. One other conclusion there is, but one which I have no intention to ascribe to Mr Bosanquet,—that there may be a theory on the one side, and facts on the other; both true, and yet inconsistent.

As for Dr Paley's test of trying the Committee's theory by a simple case, Mr Bosanquet might have tried it by a thousand, and would have found it accurately to correspond. Had he employed his leisure and ingenuity in tracing its application to the thousands of cases with which it accords, instead of hunting for two or three cases seemingly contradictory, and adopting them with fond credulity, he would have probably arrived at more just conclusions.

Mr Bosanquet calls in question the accuracy of the following proposition of Mr Huskisson, “that if one part of the currency of a country (provided such currency be made either directly or virtually legal tender according to its denomination) be depreciated, the whole of that currency, whether paper or coin, must be equally depreciated.”

The fact brought forward by Mr Bosanquet, that the “extraordinary depreciation of the silver coin in the reign of King William did not depreciate the gold; that, on the contrary, the guinea, worth 21 perfect shillings, passed currently for 30s.,” does not prove the principle advanced by Mr Huskisson to be at variance with experience, because gold was not then the current coin; it was not, either directly or virtually legal tender; nor was it estimated at a fixed value by public authority: it passed in all payments as a piece of bullion of known weight and fineness. If by law it could not have passed for more than 21s. of the debased silver currency, it would, whilst in the state of coin, have been equally debased with the 21s. for which it would have exchanged. If guineas were now to be considered as a commodity, and were not by law prohibited from being exported or melted, they might pass in all payments at 24s. or 25s., whilst the bank note continued of its present value.

Neither is the following principle of Mr Huskisson, from which Mr Bosanquet dissents, contrary to authority, “that if the quantity of gold, in a country whose currency consists of gold, should be increased in any given proportion, the quantity of other articles and the demand for them remaining the same, the value of any given commodity measured in the coin of that country would be increased in the same proportion.” Mr Huskisson does not question, as Mr Bosanquet supposes, the truth of the principle advanced by Dr Adam Smith, “that the increase in the quantity of the precious metals, which arises in any country from an increase of wealth, has no tendency to diminish their value;” but says, that if the quantity of the precious metals increases in any country, whilst its wealth does not increase, or whilst its commodities remain the same in quantity, then will the value of the gold coin of such country diminish, or, in other words, goods will rise in price. Mr Bosanquet himself, in the argument relating to the mine, has admitted that such would be the effect. To this passage from Mr Huskisson's book, however, I have an objection to offer, because he adds, that an increase in the prices of commodities would take place (page 5) under the circumstances supposed, “although no addition should actually be made to the coin of the country.” I hold it as a conclusion which will not admit of dispute, that if neither commodities, nor the demand for them, nor the money which circulates them, suffer either increase or diminution, prices must continue unaltered whatever quantity of gold or silver may exist in the state of bullion in such country. It is hardly necessary to remark, that the case is wholly hypothetical, and is, indeed, impossible. There can be no great addition to the bullion of a country, the currency of which is of its standard value, without causing an increase in the quantity of money.

I confess I was not a little surprised by the next point brought forward by Mr Bosanquet, and I have no doubt it must have excited equal astonishment in many of his readers. Having contended throughout his work that bank notes were not depreciated as compared with gold coin, that the same rise in the price of gold might have taken place, and actually had, on some occasions, taken place, whilst our currency consisted partly of gold, and partly of paper convertible into gold, at the will of the holder; after denying that there was any point of contact between gold for exportation and gold in coin, and that it was for want of such contact that its price had risen, we are now seriously told by Mr Bosanquet that, “applying to this subject the most approved theories, he inclines to the belief that gold, since the new system of the Bank of England payments has been fully established, has not, in truth, continued to be the measure of value. Bank notes,” he maintains, “have, since 1797, unquestionably become the measure of commerce, and the money of account, and it is on these grounds that he considers the proposition respecting the price of gold, on which so much reliance is placed, as one of those which, though he admits the principle, he hesitates at the application.” Whether the Bank Directors, or others who have so confidently asserted that, admitting gold to be the standard, its high price did not prove the depreciation of the currency, will be pleased with a defence on such principles, which yields all for which the Committee contend, it is not for me to inquire. That gold is no longer in practice the standard by which our currency is regulated is a truth. It is the ground of the complaint of the Committee (and of all who have written on the same side) against the present system.

The holder of money has been injured, inasmuch as there is no standard reference by which his property can be protected. He has suffered a loss of 16 per cent. since 1797, and there is no security for him that it may not shortly be 25, 30, or even 50 per cent. more. Who will consent to hold money or securities, the interest on which is payable in money, on such terms? There is no sacrifice which a man holding such property should not make, to secure to himself some provision for the future whilst such a system is avowed. Mr Bosanquet has, in these few words, said as much in favour of the repeal of the restriction bill as all the writers, all the theorists, have advanced since the discussion of this subject commenced. What, then, does Mr Bosanquet admit that we have no standard because it is no longer gold? Let us hear what he says: “If a pound note be the denomination, it will, of course, be asked what is the standard?

“The question is not easy of solution. But, considering the high proportion which the dealings between Government and the public bear to the general circulation, it is probable the standard may be found in those transactions; and it seems not more difficult to imagine that the standard value of a one pound note may be the interest of 33l. 6s. 8d.—3 per cent. stock, than that such standard has reference to a metal, of which none remains in circulation, and of which the annual supply, even as a commodity, does not amount to one-twentieth part of the foreign expenses of Government in one year.”

So then we have a standard for a pound bank note; it is the interest of 33l. 6s. 8d.—3 per cent. stock. Now, in what medium is this interest paid? because that must be the standard. The holder of 33l. 6s. 8d. stock receives at the bank a one pound note. Bank notes are, therefore, according to the theory of a practical man, the standard by which alone the depreciation of bank notes can be estimated!

A puncheon of rum has 16 per cent. of its contents taken out, and water poured in for it. What is the standard by which Mr Bosanquet attempts to detect the adulteration? A sample of the adulterated liquor taken out of the same cask.

We are next told, that “if the Bank really possess a large stock of gold. or only to the extent of 6 or 7 millions, the best use they can make of it is to call in all the notes under 5l., and not re-issue any of this description.”

How could bankers and manufacturers be enabled to effect their small payments if the gold, thus partially issued, were at the present exchange and price of bullion to be either exported or melted? If the Bank did not issue small notes, and they could not procure guineas for large ones, they would be obliged to cease such payments altogether. The more I have reflected on this subject, the more convinced I am that the evil admits of no other safe remedy but a reduction in the amount of bank notes.