David Ricardo


The present high market price above the mint price of gold, appears to have engrossed a great portion of the attention of the public; but they do not seem to be sufficiently impressed with the importance of the subject, nor of the disastrous consequences which may attend the further depreciation of paper. I am anxious, whilst there is yet time, that we should retrace our steps and restore the currency to that healthful state which so long existed in this country, and the departure from which is pregnant with present evil and future ruin.

The mint price of gold is 3l. 17s. 10½d. and the market price has been gradually increasing, and was within these two or three weeks as high as 4l. 13s. per ounce, not much less than 20 per cent. advance.

It is remarkable that between the years 1777 and 1797 the average price of gold was not higher than 3l. 17s. 7d. During that period, our currency was one of acknowledged purity. It is only since 1797, since the year that the Bank has been restricted from paying its notes in specie, that gold has risen to 4l., 4l. 10s., and latterly to 4l. 13s. per ounce. Whilst the Bank pays its notes in specie, there can never be any great difference between the mint and market-prices of gold. It is well known that, detection being difficult, notwithstanding the most severe, and, perhaps, absurd laws, when it becomes greatly the interest of individuals from a high market price of gold, the coin will be melted and sold as bullion, or exported, as it best suits the views of those who engage in such traffic. If, then, whilst the Bank paid in specie gold rose to 4l. or more per ounce, these dealers would exchange their notes at the Bank, obtaining an ounce of gold for every 3l. 17s. 10½d. in bank notes. This gold would be melted and sold, or exported for 4l. or more in bank-notes per ounce; and as this operation might be repeated daily, or indeed hourly, it would be continued till the Bank had withdrawn the superfluous quantity of their notes from circulation, and had thereby brought the market and mint prices of gold to a level. This is the only check which can exist to an over issue from the Bank, and was so well known that the Bank never ventured on it with impunity.

No efforts of the Bank could keep more than a certain quantity of notes in circulation, and if that quantity was exceeded, its effects on the price of gold always brought the excess back to the Bank for specie. Under such regulations the market price of gold could never rise much above the mint price, for who would give 4l. or more, in bank-notes, for an ounce of gold, when he might obtain the same at the Bank for 3l. 17s. 10½d. It would be the same thing as offering an ounce of gold and 2s. 10½d. for an ounce of gold.—When we talk of a high price of gold, it can have no meaning, if estimated in gold, or in notes which are immediately exchangeable for gold. It may be high, estimated in silver, or in goods of all kinds, and it is only when gold is high compared with goods, or in other words that goods are cheap, that any temptation is offered for its importation. When it is said that we may obtain 1l. 5s. for a guinea by sending it to Hamburg, what is meant but that we may get for it a bill on London for 1l. 5s. in bank-notes? Could this be the case if the bank paid in specie? Would any one be so blind to his interest as to offer me one guinea in specie and four shillings, for a guinea, when he might obtain the same at Hamburgh at par, paying only the expences of freight, &c.? It is only because he cannot get a guinea at the Bank for notes, that he consents to pay it with notes at the best price he can, or in other words he sells 1l. 5s. of his bank-notes for a guinea in specie.

When the Act restricting the Bank from paying in specie took place, all checks to the over issue of notes were removed, excepting that which the Bank voluntarily placed on itself, knowing that if they were not guided by moderation, the effects which would follow would be so notoriously imputable to their monopoly, that the Legislature would be obliged to repeal the Restriction Act.

Whilst the Bank is willing to lend, borrowers will always exist, so that there can be no limit to their over-issues, but that which I have just mentioned, and gold might rise to 8l. or 10l. or any other sum per ounce.—The same effect would be produced in the price of provisions and on all other commodities, and there would be no other remedy for the depreciation of paper, than the Bank withdrawing the superabundant quantity from circulation, by insisting on the merchants paying their bills as they became due, and refusing to renew their loans until the scarcity of circulating medium should so raise its value that it would be at par with gold. It could rise but little above that price, for from that moment importation of gold would commence, and if the Bank were gradually to withdraw all their notes from circulation, the place of those notes would as gradually be supplied by imported gold, which the high price—I mean the high price in goods, would infallibly draw to this country.

If my view of this subject has been correct, we are enabled to ascertain the amount of depreciation at which Bank notes at any time may be, and when gold was at 4l. 13s. per ounce, they appear to have arrived at the enormous discount of 20 per Cent. I may be asked if Bank notes are at so great a discount, how comes it that no shopkeeper will sell more goods for twenty guineas than for 21l. in Bank notes. For this I can only account by supposing that the trade of purchasing guineas at a premium, or in other words selling Bank notes at a discount, is one which would expose the man who openly undertook it to so much obloquy and suspicion, that notwithstanding the profit, no one is hardy enough to encounter the risk, particularly as the law is very severe against melting the coin or exporting it. But that it is practised secretly there can be no doubt, as the profit attending it is enormous, and the number of guineas in circulation, considering that nearly 60 millions have been coined in the present reign, is diminished to a very small amount.

It is sufficient for my argument if I prove that it is a trade which can advantageously be carried on—that if tradesmen could openly and readily sell guineas for twenty-three shillings each, or more in Bank notes, they could afford to sell their goods cheaper for gold than for Bank notes;—and it is sufficiently evident that buying guineas at twenty-three shillings is between 9 and 10 per cent. premium, and selling gold at 4l. 13s. or nearly 20 per cent. premium, is a trade much more advantageous than many carried on in the city of London.

If further proofs of the depreciation of Bank notes were wanting, and that it was caused by an over-issue, it would be found in the present rate of exchange with foreign countries. To make this apparent may require us to consider what is meant by the rate of exchange, and the rules and limits to which it is subject.

If I purchase from a resident in Holland goods of that country, the bargain is made in the money there current. I have consequently contracted to pay him a certain number of ounces of silver of a given purity. As the comparative value of silver and gold is nearly equal all over the world my debt may be either estimated in silver or in the number of ounces of gold for which it would exchange. And if a merchant in Holland has purchased from a resident in London goods which are valued in English money, he has contracted to pay a certain number of ounces of gold of known purity or fineness.

To save the expence of the freight and insurance attending the exporting and importing of a quantity of gold to liquidate these debts, it suits the convenience of both the parties, after agreeing how much money of the one country is equivalent, considering its weight, purity, &c. to that of the other, and which is called the par of exchange, to make a transfer by means of a bill, which is done by my paying to the English merchant the sum which I am indebted to my Correspondent in Holland, the English merchant ordering his Correspondent in Holland to pay to mine the same amount, estimated at the rate of exchange agreed on, in Dutch money. The advantage to both parties is saving freight and insurance. Now if two or more parties had been indebted to merchants in Holland, there would have been a competition between them for the purchase of this bill, and the seller would no longer have been satisfied with saving the freight and insurance on the importation of his gold, but would have exported, and would have obtained a premium for his bill, which it would have been the interest of either of the other parties to have given him, provided such premium did not exceed the expence of the transport of the metals. It is necessarily kept within that limit, for either would say, “the number of ounces of gold which I owe in Holland are ready to pay my debt. I am willing to give them to you to pay it for me, and to add to it the expences which would attend the sending it; but nothing can induce me to give more, as if you do not accept my offer, I shall suffer no further disadvantage by sending the gold!”— This is therefore the natural limit to the fall of the exchange, it can never fall more below par than these expences; nor can it ever rise more above par than the same amount.

But since the restriction on the Bank paying in specie, the fall of the exchange has kept pace with the rise in gold, and is now considerably lower than the limits which I have pointed out, and which may be accounted for in the following manner:—

A merchant can no longer say, that he is possessed of a sufficient number of ounces of gold to send abroad to pay his debt; he may say, indeed, that he has a sufficient number of bank notes, which if he could sell at par, or exchange at the Bank for what they profess to be, viz. an ounce of gold for every 3l. 17s. 10½d. he would have sufficient gold to pay his debt; but as things are, he must either sell his bank notes and be contented to obtain an ounce of gold, or 3l. 17s. 10½d. for every 4l. 13s. of notes, or agree to make an allowance at that rate to the person with whom he negociates his bill. Thus then it appears, that the exchange may not only fall to the limits which I have before mentioned, but also in an inverse proportion to the rise of gold, or rather the discount of bank notes. But these are the limits within which it is even now confined. It cannot on the one hand rise more above par than the expence of freight, &c. on the importation of gold, nor on the other fall more than the expences of freight, &c. on its exportation, added to the discount on bank notes.

If bills of exchange were payable in gold and not in bank notes, the restriction on the Bank from paying in specie, could not in any way affect the exchange beyond the limits which I before specified.

What becomes then of the argument which has so often been urged in Parliament, that whilst the rate of exchange continued against us, it would not be safe for the Bank to pay in specie, when it is evident that their not paying in specie is the cause of the present low exchange.

Let the Bank be enjoined by Parliament gradually to withdraw to the amount of two or three millions of their notes from circulation, without obliging them, in the first instance, to pay in specie, and we should very soon find that the market price of gold would fall to its mint price of 3l. 17s. 10½d. that every commodity would experience a similar reduction; and that the exchange with foreign countries would be confined within the limits above mentioned.

It would then be evident that all the evils in our currency were owing to the over-issues of the Bank, to the dangerous power with which it was entrusted of diminishing at its will, the value of every monied man’s property, and by enhancing the price of provisions, and every necessary of life, injuring the public annuitant, and all those persons whose incomes were fixed, and who were consequently not enabled to shift any part of the burden from their own shoulders.




In the observations which I made on the high price of gold in the Morning Chronicle of the 29th ultimo, I expressed my apprehensions of the serious consequences which might attend the increasing depreciation of paper. By lessening the value of the property of so many persons, and that in any degree they pleased, it appeared to me that the Bank might involve many thousands in ruin. I wished, therefore, to call the attention of the public to the very dangerous power with which that body was entrusted; but I did not apprehend, any more than your Correspondent, under the signature of “A Friend to Bank Notes,”1 that the issues of the Bank would involve us in the dangers of a national bankruptcy.

Allowing to this writer, that the demand for gold has increased, whilst the usual supplies have been withheld, I am not convinced by any arguments which he has advanced, that the market price of gold could have been thereby affected, unless the medium in which the price was estimated was depreciated. That the scarcity of gold should increase its value cannot be doubted; that it would in consequence, when exchanged for other commodities, command an increased quantity of them, is as certain; but no scarcity, however great, can raise the market price much above the mint price, unless it be measured by a depreciated currency.

A pound of gold is coined into forty-four guineas and a half, or 46l. 14s. 6d. This is, therefore, the mint price, and cannot be called, as your Correspondent calls it, an arbitrary value. It is the simple declaration of a fact, that forty-four guineas and a half are of the same weight as a pound of gold, and one-twelfth of that quantity or 3l. 17s. 10½d. of an ounce.

Experience has proved to us, and particularly that of the twenty years preceding 1797, during the vicissitudes of war and peace, of favorable and unfavorable trade, that 46l. 14s. 6d. or a mint pound, would purchase sometimes a little more, and sometimes a little less than a pound of uncoined gold; and whilst an equal amount of bank notes would do the same, they would not be said to be depreciated. This they always did previous to the restriction on the Bank paying in specie, and for some time after it. Will this writer explain to us why any demand, however great, should induce any one to give, as has been lately done, 55l. 16s. in bank notes, for a pound of gold, if they are of equal value with 55l. 16s. in coin? Does he reflect that the gold actually contained in 55l. 16s. weighs one pound and a fifth of a pound? Is it seriously believed that he would give this for a pound? If it is agreed that he would not, then is the fact of the depreciation of bank notes fully established. If for the purchase of gold a greater quantity of corn, hardware, or any other commodity, were given than usual, it might justly be said that the scarcity of gold had increased in value. But what is the fact? If I go to market with corn or hardware, I can purchase 55l. 16s. in bank notes with precisely the same quantity that I am obliged to give to procure a pound of gold, or 46l. 14s. 6d.

I do not dispute with this writer but that it may be advantageous to a foreigner to send his goods to London, and after selling them for 25s. give that sum for the purchase of a guinea. He may possibly be doing it now with profit to himself. But he would not give twenty-five shillings for a guinea, if he did not pay for it in a depreciated medium. Again, I ask, does he think it possible that he would give a guinea and four shillings for a guinea, or bank notes to that amount, if they were exchangeable for that sum?

From the observations of this writer we should be led to suppose, that gold being at a higher price on the Continent than it is here, we might obtain there for it 4l. 15s. or more per ounce; but we should be mistaken in forming such a conclusion. It is paid for there in a medium not depreciated, and is probably somewhere about 4l. per ounce. But a purchaser here at 4l. 10s. can afford to sell it there at that price; because by means of the low exchange, (caused by the depreciation), he can reimburse himself for the depreciation of 15 or 20 per cent. to which our currency has arrived.

It is contended, too, that all the effects on the Exchange, “which I attribute to the issue of bank notes, would equally be felt if there were not a single bank note in circulation.”

If our circulation were wholly carried on by specie, I believe it would be difficult for this writer to convince us, that the exchange might be 20 per cent. against us. What could induce any person owing 100l. in Hamburgh, to buy a bill here for that sum, giving 120l. for it, when the charges attending the exportation of the 100l. to pay his debt could not exceed 4l. or 5l.?

The severity of the law against the exportation of gold coin, prevents any one from openly selling bank-notes at a discount, not from any delicacy, as your correspondent supposes me to say, against doing an immoral or an unlawful act, but from the fear that as it is known that no one can purchase guineas but with a view to exportation, he would become an object of suspicion,—he would be watched and unable to effect his purpose. Repeal the law, and what can prevent an ounce of standard gold in guineas from selling at as good a price as an ounce of Portugal coin, when it is known to be rather superior to it in purity? And if an ounce of standard gold, in guineas, would sell in the market (as Portugal coin has lately done) at 4l. 13s. per oz. how long would a shopkeeper sell his goods at the same price either for gold or bank-notes indifferently? The penalties of the law, therefore, have degraded the few guineas in circulation to the value of the bank-notes, but send them abroad and they will purchase exactly what an equal quantity of Portugal coin will.

This is the temptation to their exportation, and operates the same as a demand from abroad. Our currency is already superfluous, and it is worse than useless to retain the guineas here. But diminish the currency by calling in the excess of bank-notes:—Make a partial void, as your correspondent justly observes was done in France and other countries, from the annihilation of their paper-credit, and what can prevent the effectual demand which would thereby be immediately created, from producing an importation of gold, and consequently a favorable exchange?

If our circulating medium has been augmented a fifth, till that fifth be withdrawn the prices of gold and commodities will remain as they are. Increase the quantity of notes, they will rise still higher; but withdraw the fifth, as I earnestly recommend, and gold and every other commodity will find its just level, and whilst the Bank continues to possess the confidence of the public, the representative of an ounce of gold, or 3l. 17s. 10½d. in bank-notes will always purchase an ounce of gold.

The hint thrown out of altering the mint price to the market price of gold, or, in other words, declaring that 3l. 17s. 10½d. in coin, shall pass for 4l. 13s. besides its shocking injustice would only aggravate the evil of which I complain. This violent remedy would raise the market price of gold 20 per cent. above the new mint price, and would further lower the value of bank-notes in the same proportion.

It has been shewn incontrovertibly by that able Writer, Dr. Adam Smith, that the rate of interest for money is regulated by the rate of profits on that part of capital only which does not consist of circulating medium, and that those profits are not regulated but are wholly independent of the greater or lesser quantity of money which may be employed for the purposes of circulation; that the increase of circulating medium will increase the prices of all commodities, but will not lower the rate of interest.1

We must not, therefore, depend upon the criterion, namely, the rate of interest so strongly recommended by your correspondent, by which to judge of the issues of the Bank; because, if Dr. Smith’s reasoning be correct, if our circulating medium were ten times as great as it is, the rate of interest would not be permanently affected.

I think, Sir, I have succeeded in proving that my alarms are not altogether groundless, and that there does exist a great depreciation in our currency, affecting the interests of the public annuitant, and of those whose property consists in money, without any corresponding advantages. The evils attending a variable medium, as it affects all contracts, are too obvious to require to be noticed. The permanency of the value of the precious metals first recommended them as the general medium of exchange. That advantage is now lost to us, and we cannot consider our currency on a solid foundation till it be restored to the value of that of other countries.

By withdrawing a certain quantity of Bank of England notes from circulation it is supposed, by Mr. Cobbett, that their place would be immediately supplied by country banknotes.2 No such effect would, in my opinion, take place; on the contrary, I think such a measure would oblige the country-banks to call in at least as many, if not considerably more, of their notes.

A Bank of England note and a country bank note are now of equal value, and their quantities are proportioned to the business which they have to perform. By withdrawing Bank of England notes from circulation you increase their value and lower the prices of commodities in those places where they are current. A Bank of England note will then be more valuable than a country bank-note, because it will be wanted to purchase in the cheaper market; and as the country bank is obliged to give Bank of England notes in exchange for their own, they would be called upon for them till the quantity of country paper should be reduced to the same proportion which it before bore to the London paper, producing a corresponding fall of the prices of all commodities for which it was exchangeable.

A writer in The Pilot newspaper has been pleased to suppose, that a gentleman who has written in your paper under the signature of “Mercator,” has done so “in aid or in imitation of, or in conjunction and conspiracy with me.” The fact can of itself be of little importance. If his arguments or mine are weak, let him shew them to be so; but “No Trafficker” is mistaken.—The sentiments of “Mercator” are only known to me as they are to him, through the medium of The Morning Chronicle.1

I am Sir, &c. R.




Had your Correspondent, “A Friend to Bank-notes,” when he first did me the honour to notice my observations on the high price of Gold, contended, as he now does, that Bank-notes were the representatives of Silver, but not of Gold Coin, we should sooner have discovered from whence the difference of our opinions on the subject in dispute between us arose. I should then, Sir, have spared him the trouble of giving so many proofs of that which is indisputable, namely—that if Silver be the sole measure of value, Gold being at 4l.13s. per oz. is not, of itself, evidence of Bank notes being at a discount. Indeed, I thought that in the following observations I had admitted that position—“When we talk of a high price of Gold, it can have no meaning if estimated in Gold, or in Notes which are immediately exchangeable for Gold. It might be high estimated in Silver, or in goods of all kinds.” It was evident from the tenor of that and the subsequent paper, that I considered Gold Coin as the standard of commerce, and by it estimated the depreciation of Bank-notes. I had no reason to suppose that it was otherwise considered by your Correspondent. In one place he called Bank-notes a “substitute for Gold”; in another he observes, that “Had not this restriction been imposed, the great and growing demand for Gold upon the Continent would have drawn every Guinea out of the Country, and would have left us without resource in any emergency which might arise, by which its credit would be shaken.” The restriction could only have enabled the Directors of the Bank, if they had been so disposed, to prevent the Guineas locked up in the Bank from being exported. Those in circulation have been as liable to be sent out by the Country since, as before that measure. But, if Silver only be the standard of currency, as is now asserted, the Bank might have paid their Notes in our present debased Silver Coin; in Shillings, for example, debased 24 per cent. below their standard weight and value, the Guinea, therefore, would not have needed that protection. The Silver would not have been demanded, because it could not have been either melted or exported, but at a loss of 24 per cent. If Silver be the standard of currency, Bank-notes were, in 1797, at a premium of 24 per cent. and are now at a premium of 14 per cent.

But if, as I shall attempt to prove, Gold be the standard of value, and consequently, Bank Notes the representatives of the Gold-coin, I do expect that this writer will agree with me that Bank Notes are at a discount, and that the excess of the market above the mint price of Gold measures the depreciation.

The price of standard Silver bullion was on Tuesday last 5s. 9½d. per oz. On the same day, the price of standard Gold bullion was 4l. 10s. per oz. An ounce of Gold was therefore equal to about 15½ oz. and not 18 oz. of Silver.

If, then, we estimate the value of Bank Notes by the price of Gold bullion, they will be found to be 15½ per cent. discount. If by the price of Silver bullion 12 per cent. discount. But your Correspondent would no doubt observe, that this conclusion from the price of Silver bullion would be correct, if our Silver currency were not degraded by wearing and clipping, but as it was known to be depreciated by being deficient in standard weight, the high price of Gold bullion might in a great measure, and that of Silver bullion wholly, be caused by that deficiency. Bank Notes are, according to this argument, the representatives, not of our standard Silver currency, but of our debased Silver Coins.

It is observed by Lord Liverpool, in his letter to the King on the state of the coins,1 that the law now is, and has been since the year 1774, “That no tender in payment of money made in the Silver Coin of this realm, of any sum exceeding the sum of 25l. at any time, shall be reputed in law or allowed to be legal tender, within Great Britain or Ireland, for more than according to its value by weight, after the rate of 5s. 2d. for each ounce of silver.”

Bank-notes are not then the representatives of the debased silver coins. A holder of a Bank-note of 1000l. might refuse to take more than 25l. in the present debased Silver currency. If the remaining 975l. were paid him in shillings, he would receive them by weight, at their Mint value of 5s. 2d. per oz. which, with the 25l. of debased Silver, when sold at the present price of 5s. 9½d. per oz. would yield 1110l. in Bank-notes. Here then it is proved, on this writer’s own principles, that if Silver be the standard currency, Bank-notes are at a discount of 11 per cent.

For the following reasons given by Lord Liverpool, in the work before mentioned, I consider Gold as the standard measure of value. He observes, “that the Silver Coins are no longer the principal measure of property: all commodities now take their price or value in reference to the Gold Coin,2 in like manner as they took their value in a former period in reference to the Silver Coins. On this account the present deficiency of the Silver Coins, great as it is, is not taken into consideration, in paying the price of any commodity, to the extent in which they are legal tenders. It is clear, therefore, that the Gold Coins are now become, in the practice and opinion of the people, the principal measure of property.”

He then states, that in the reign of William the Third, the Guinea was current at even so high a value as 30s.; that the Gold Coins rose or fell as the Silver Coins were more or less perfect. “No such increase or variation in the value of Gold Coin has taken place since the year 1717, when the rate or value of the Guinea was determined by proclamation, and the Mint indenture, to be 21s. and the other Gold Coins in proportion; though the Silver Coins now current have long been, and are still, at least as deficient as they were at the beginning of the reign of King William. The Guinea and other Gold Coins have, notwithstanding, constantly passed since 1717, at the rate or value given them by the Mint indentures.”

“The two foregoing reasons clearly prove the opinion of the people of Great Britain on this subject, in their interior commerce and domestic concerns. I will in the next place shew what has been the opinion of foreign nations concerning it.” In the reign of King William the exchanges rose or fell according to the perfection or defect of our silver coins. Before the recoinage in 1695, the exchanges with all foreign countries were 4s. in the pound against England, and with some of them considerably more. “The same evil, however, has never existed since the year 1717, though our silver coins have, during all this interval, been very defective. But, on the other hand, our exchanges with foreign countries were very much influenced to our disadvantage, when our gold coins were defective, that is, previous to the reformation of our Gold Coins in the year 1774.” Lord Liverpool considers this as a proof that foreigners consider our Gold Coins as the principal measure of property. Another argument is drawn from the prices of gold and silver bullion. When our Gold Coin was defective previous to the re-coinage in 1774, gold bullion advanced considerably above its mint value, but immediately on its being brought to its present state of perfection, gold bullion fell to something under the mint price, and has continued so for twenty years previous to 1797. “It is evident, therefore, from these facts, that the price of gold bullion was affected by the state of our gold coins, though the price of this bullion had not since the year 1717, been so affected by the defective state or condition of our silver coins.” The price of silver bullion has, since the year 1717, been affected by the perfection or defect of our Gold Coins, but has not been so by the defective state of our Silver Coins.—“From all which it is evident, that the value of Gold or Silver Bullion has, for 40 years at least, been estimated according to the state of our Gold Coin solely, and not according to that of Silver Coin. The price of both these metals rose when our Gold Coin was defective; it fell when our Gold Coin was brought to its present state of perfection; and it may, therefore, justly be inferred, that, in the opinion of the dealers in the precious metals (who may be considered as the best judges on a subject of this nature), the gold coin has in this respect become the principal measure of property, and consequently the instrument of commerce.” In another passage, Lord Liverpool considers a pound sterling to be 20–21 of a guinea. The same opinion is advanced by Sir J. Stewart—“At present (says he) there are no sterling pounds in silver money; there is no silver in England in any proportion to the circulation of trade; and, therefore, the only currency by which a pound can be valued is the guinea.”

The Bank-Directors must have been of the same opinion, when they stated in their evidence before Parliament, that it was their usual practice to limit the amount of their notes when the market price of gold exceeded the mint price.

In the Report of the Committee of the House of Lords in 1797, it is observed, that “Gold is the mercantile coin of Great Britain, and silver has for many years been only a commodity, which has no fixed price, and is very rarely carried to the Mint to be coined, but varies according to the demand for it at the market.”

I am, Sir, your obedient Servant,


Nov. 4


The above letter concluded the correspondence in the Morning Chronicle. The controversy was continued privately by Ricardo and Trower, and at least two papers were written by each of them. Only two of these papers (one by Trower and one by Ricardo) have survived and they are below. Trower’s paper is included since it gives some indication of the contents of a missing paper by Ricardo.


1. It is admitted by Mr. Ricardo that Silver would be the measure of value if there did not exist a law prohibiting the coining of Silver Bullion into money, but that, in consequence of this law, Gold must now be the measure of value.—

By similar reasoning I may contend, that not Gold but Bank Notes are now the measure of value because there exists a law prohibiting the Bank from paying their Notes in Specie.

I allow, that there is this difference between the two cases, that, whereas individuals may, if they choose, take Gold Bullion to the Mint to be coined into money, they cannot do so, with silver bullion; but this difference in the two cases can have no effect upon the question between us, that question being, whether Bank Notes represent Gold or Silver.—Now, in point of fact, they at present represent neither, the Bank being prohibited from paying their Notes in either. In speaking of Bank Notes, therefore, as the representatives of specie, reference must be made to the period when the restriction imposed upon the Bank will be removed. If at that period of time the law inhibiting the coinage of silver money shall continue in force, in that case undoubtedly Gold must be considered as the measure of value in this Country. But, at present, that Act according to my notion, has no more influence upon the question between us than the restriction bill itself has.—

We are agreed in opinion with respect to the circumstance[s] which constitute the one metal a measure of value, in preference to the other, to those circumstances therefore, and to those only, must we look in order to determine, which is that measure. That circumstance is the low valuation at which one of the metals is rated at the Mint, compared with its market price. It is admitted, that Silver is the Metal which is, at present, so circumstanced. Silver therefore, must now be the measure of value.—Indeed if we look to the fact we shall find, that there is at present more silver coin in circulation than Gold coin. And how can it be otherwise when the temptation is so great for carrying off the latter.—I confess therefore I do not see the force of the objections urged against Silver being now the measure of value, founded as they are upon the Act prohibiting the coinage of that Metal.—

2. It is admitted, that if the debased Silver Coin were legal tender, the excess of the market price, above the mint price of silver bullion would be sufficiently accounted for by that circumstance.

The reply to this observation is, that if the debased Silver Coin were legal tender, without limitation, the excess of the market above the mint price of that Bullion would not be merely 8pC t but a great deal more, and nearly in proportion to the extent of the debasement of that coin. The restriction imposed upon the debased Silver Coin as legal tender, is the cause, therefore, why the difference between the Mint and Market price of that bullion is not greater than it is.—

3. It is said, ‘that it is known, that the debased coin does not pass in circulation according to its intrinsic value, but according to the value of the metal, which it ought to contain.’—This is something like begging the question, for it is asserting the point in dispute, the question between us being whether the debased Silver coin do, or do not, so pass. But in proof of this assertion Mr. R. makes use of an argument, which, I confess, I did not expect to see him advance, as it can, with the strictest propriety, be so completely turned against him. He says, ‘Compared with the Gold coin, which is undebased, is it not of equal if not of superior value to it?’ My answer is, ‘you say that Bank notes are 20 pC.t discount[;] compare them with the Gold coin, which is undebased are they not of equal value to it?’ If there be any truth in your argument, there is equal truth in mine; and I may exclaim with you ‘What pretence can there be then for saying, that the debased value of Bank Notes is a cause of the increase in the price of commodities?’

The same remarks may be applied to Mr. R’s supposed case of a Merchant with his Warehouse full of Goods, desirous of purchasing silver bullion for the purpose of exportation. Mr. R. says ‘that if the Merchant could sell his goods, at once, for heavy silver coin, and melt it, he would obtain 8 pC.t more silver than if with the money he purchased Silver bullion.’ This I deny, for I contend, that if the heavy silver coin were in circulation, instead of the light, the present difference between the market and mint price of silver bullion would not exist. The cause for that difference being removed, the effect would necessarily cease.

Again, Mr. R. observes, that the fact is ‘that £1000 in such debased Silver will purchase precisely as much silver bullion as £1000 in gold coin’, to this I may reply, with equal propriety, that the fact is, that £1000 in Bank Notes will purchase precisely as much silver Bullion as £1000 in Gold coin. The argument here employed by Mr. R. will serve my cause equally well with his own, Mr. R. must therefore either abandon this argument by which he attempts to prove, that the debased silver coin passes in circulation according to the value of the metal which it ought to contain, or he must entirely abandon the question between us. For it is quite as strong to prove, that Bank Notes are not at a discount, as it is to prove, that our Silver coins are not [at] a discount—or, in other words, if it be sufficient to shew, that the debased Silver coin is not a cause of the increase in the price of commodities, it is equally sufficient to shew, that the amount of Bank Notes in circulation is not a cause of that increase.

I have now observed upon Mr. R’s remarks as far as they relate to this point, and wait his reply.—


‘Now, in point of fact,’ says Mr. Trower, ‘Bank notes, at present, represent neither gold or silver, the Bank being prohibited from paying their notes in either.’ The dispute between Mr. Trower and myself, as I understood it, was, whether a bank note was an obligation to pay either. It is true that the bank is by law exempted from fulfilling its obligations, but that fact does not prevent us from ascertaining what their engagement is, and in what manner they would be obliged to perform it if the law were repealed. Here then is the difference in our view of the subject. Mr. Trower contends that if the Bank were suddenly obliged to fulfill their engagements they could and would pay in silver coin it being their interest so to do; I on the contrary maintain that if so called upon they would be obliged to pay in gold coin,—that the silver coin is insufficient for the purpose and that by an express law there can be no silver coined. I admit that if silver could be coined that metal would be preferred because it could be obtained at the least expence,— but that, whilst there is a law against the coinage of silver it is in fact reducing us to the use of gold only. The full extent of what I am contending for is allowed by Mr. Trower when he says, ‘If at that period of time’ (when the restriction on the bank shall be removed) ‘the law inhibiting the coinage of silver money should continue in force, in that case undoubtedly gold must be considered as the measure of value in this country.’ Is it fair that Mr. T should not argue on things as they are, but on those which he supposes may take place at some future period? The act prohibiting the coinage of silver may be repealed, and when that happens Mr. Trower may be right, silver may then become the standard measure of value, but whilst the law continues in force gold must necessarily be that measure, and the value of bank notes therefore must be estimated by their comparative value with gold coin or bullion.

The fact of there being more silver coin in circulation than gold can be easily accounted for; in the first place there are no bank notes of less amount than one pound hence a necessity for the use of silver in small payments. Secondly, Bank notes being a substitute for gold coins there is absolutely no use for guineas, this joined to their high value compared with their substitute sufficiently accounts for their disappearing from circulation, and lastly the gold coin having retained its standard weight whilst the silver coin is debased 40 p ct. renders it advantageous to melt guineas and to retain the silver in circulation.

With respect to the second point in dispute, the effect on the prices of commodities, and of gold and silver bullion, which Mr. Trower supposes to have been produced by the debased state of the silver coins. Why, I would ask, if such be the fact was not the same effect produced on the market prices of those metals before the restriction on the Bank in 1797?

It will not be a satisfactory answer to say, because gold coin was then the standard measure, and, thatcoin not being debased no such effects followed. I say this would not be satisfactory because gold was the measure of value, only as it would more advantageously discharge a debt than standard silver coin;—but we are not now speaking of the standard silver coin but of the debased silver coin. The debased silver would then, as well as now have been comparatively cheaper than the gold coin and could then, if it can now, have been more advantageously employed for the discharge of a debt; but no such effects followed then; gold bullion was steadily under its mint price and silver bullion was only above it because of the inaccurate determination of the mint proportions. Perhaps a little further consideration will make this more clear. In 1797 the silver coin was debased 24 p. ct.; at the same time the proportionate value of gold and silver was, in the market, as 14¾ to 1 whilst in the coin they were estimated as 15 to 1, gold was therefore the measure of value if the standard metals be compared;—but gold compared with the debased coin was as 19 to 1, there were therefore the same reasons then as there are now for gold bullion being above the mint price, as far as the debasement of silver was concerned; therefore I contend, that if as Mr. Trower supposes the price of commodities be now affected by the debased state of the silver coin, they must for the same reason have been equally so in 1797 and for many years before it. Will Mr. Trower explain why no such effect followed, Gold having been before 1797 for 23 years under its mint price?

I have said ‘Compare the debased silver coin with the gold coin which is undebased, is it not of equal value to it?’ Mr. Trower answers ‘You say that Bank notes are 20 p.c. disct compare them with the gold coin which is undebased, are they not of equal value to it?’ Mr. Trower in another place observes that if the fact be as I state that £1000 in debased silver coin will purchase precisely as much gold or silver bullion as £1000 in gold coin, so is it also a fact that £1000 in Bank notes will do the same. If then it be admitted that at this time £1000 either in gold coin, in debased silver coin, or in Bank notes are precisely of the same value when used in the purchase of commodities, what is the cause that neither of these will purchase as much gold or silver bullion as they did in 1797 previously to the Bank restriction bill? And, tho’ they may be of the same value in circulation here at home, is this agreement in their value forced or natural?

It must be evident that it is not by the value of the undebased gold coin, that the values of the bank notes and of debased silver are at present regulated. If they were so, gold would not be above its mint price because Mr. Trower has always agreed that no one would give more than an ounce of gold for an ounce of gold, gold could not therefore be at £4- 10/ or £4- 13/ per oz, if the value of the circulating medium were generally equal to that of the gold coin. It necessarily follows that the value of the gold coin is brought down to that of the debased silver, or to the Bank notes. But I have already remarked that the debased silver was always previously to 1797 brought up (because it was always moderate in its quantity) to the value of the gold coins, and that altho’ it was legal tender to a certain amount, it was neither sufficiently abundant nor sufficiently current to raise the price of gold bullion above its mint price. Not an instance has occurred of a purchaser of gold bullion having paid a penny an ounce more for it in consequence of his wish of paying in debased silver coin.

If then gold and silver coins be of the same value and at the same time are depreciated in their exchangeable value to ?of their true value; to the value in short of the Bank notes which are in circulation with them, to what can we attribute this phenomenon but to the depreciation of Bank notes? Let us suppose the law against the exportation of guineas repealed, Mr. Trower would not then contend that gold coin, silver coin and bank notes would be of equal value because he has already admitted that more than an ounce of gold would not be given for an ounce of gold; but under those circumstances gold would continue to sell for £4- 10/ or £4- 13/ for bank notes or for debased shillings, but for gold coin it would not be higher than £3 - 17 - 10½ per oz.

The present value at which gold coin passes in circulation is a forced value; its natural value is 15 p.c. above its forced value, but repeal the law, withdraw the force by which it is kept down, and it will immediately recover its natural value. If then I were to yield the first point in dispute and allow that Bank notes were obligations to pay silver and not gold coin, it would be evident that no other effect could be produced on the prices of gold or silver bullion, or on any other commodities from the debasement of the silver coin but the trifling one occasioned by a very small proportion of the debased silver coin being considered legal tender.

Before the recoinage of the gold coin in the year 1774, gold bullion, as I have already observed, was at £4 pr oz, being 2/1½ above the mint price. The debasement of the gold coin must have had a similar effect in raising the prices of all other commodities. This is a principle no longer disputed. Immediately on the recoinage gold fell under its mint price.

Whilst the gold coin was thus debased a guinea fresh from the mint and consequently undebased or any other which had been hoarded and had not partaken of the debasement, would have purchased no more goods than a worn and de-based guinea, but it would not thence be argued that the debased and the new guinea were of equal value, it being manifest that the prices of all commodities were regulated, not by the quantity of gold in the new guineas, but by the quantity actually contained in the old.

In like manner, now, though a few guineas may be in circulation and may pass in the purchase of commodities for no more than an equal amount in Bank notes, the prices of commodities are regulated not by the quantity of gold which the guineas contain, but by the quantity which the Bank notes will purchase. These two quantities must, if the coin be undebased, and the bank notes not depreciated, be always nearly equal.

The fact of gold coin having been for near a century the principal measure of value is I think placed beyond dispute by the arguments of Lord Liverpool. They are briefly as follows. The debasement of the silver coin has not during that period caused any excess of the market above the mint price of either gold or silver bullion;—neither has it produced any effect on the exchanges with foreign countries, whereas the debasement of the gold coin which occurred during a part of the century never failed to produce a rise in the market price of gold and silver bullion and a corresponding effect on the rate of exchange; that immediately on the gold coin being brought to its present state of perfection the price of bullion fell under its mint price and the foreign exchanges were at par, if not favorable to us.

Lord Liverpool has clearly proved this fact, but has not given any satisfactory reasons why gold should be the standard measure of value in preference to silver.

It appears to me that gold must be the principal measure, if not the only measure of value, whilst the relative value of gold and silver is less in the market than the relative value of those metals in the coins, according to the mint regulations.

Gold and silver coins are equally by law legal tender for all sums if of their legal weight.

By the regulations of the mint gold is 159/124 times the value of silver. In the market up to the period when Lord Liverpool wrote, gold was only 14¾ times, on an average of a very long period, more valuable than silver. It became therefore the interest of every debtor to pay his debt in the gold coin and also the interest of every person, as well as the bank, who carried bullion to the mint to be coined, to carry gold and not silver for that purpose. Thus, if I were a merchant having my warehouses well stocked with goods and was in debt £1000—I could purchase as much gold bullion as is contained in a thousand pounds with less goods than I should be obliged to part with to obtain the quantity of silver bullion contained in a £1000,—this would determine me to purchase the gold and not the silver, and to carry the gold and not the silver to the mint to be coined. Whilst gold was only 14¾ the value of silver, the price of silver bullion would be always above its mint price, there would be a loss therefore to the bank in purchasing silver bullion to be coined,— whereas there would be no such loss in purchasing gold bullion for that purpose. It appears therefore evident that it is only whilst gold is less valuable in the market compared with silver, than it is by the mint regulations, that it will be the only measure of value. Bank notes will whilst this continues be the representatives of the gold coin, because the bank will always pay in the coin which can be coined at the least expence to them.

But, if in the course of time, as it appears lately to have done, gold should become more valuable, and be in the market at a greater proportion to silver than it is in the coins,—if it should be 15½ or 16 times the value of silver, gold would be above its mint price and silver would be at or below its mint value. Gold could then be profitably melted and silver could be profitably coined; silver would therefore become the standard of value; the bank would pay its notes in silver and consequently bank notes would become the representatives of the silver and not the gold coin. Indeed this is Mr. Trower’s argument. The high price of gold bullion, he justly contends, is no proof of the depreciation of bank notes because gold bullion may rise above its mint value from an alteration in its relative value to silver, tho’ a bank note were not in existence. It will be seen by what I have already said that I unequivocally admit the truth of this position.

But if a high price of gold bullion proceeded from this cause the price of silver bullion would never whilst the coins of full weight only were legal tender, be above the mint price. No one contended when the price of silver bullion was above its mint price and the gold bullion was at or below its mint value (and this was the case generally previous to 1797) that bank notes were depreciated; and, if the price of gold bullion were 20 p.c. above its mint price, and silver bullion were at its mint price, I should allow that bank notes were not at a discount;—but when the prices of both the metals are above the mint prices it is proof conclusive of bank notes being at a discount.

Mr. Trower wishes to account for this from the acknowledged fact of the silver currency being debased.—If this debased currency were legal tender I should not dispute the point with him,—but it is acknowledged by him that it is not;—the debasement of the silver therefore cannot be the cause of the high price of silver bullion.

I shall now answer a few of the observations of Mr. Trower1 on my last letter in the Chronicle.

I quoted the price of silver at 5/9½ without any view of making my argument better or worse. The price of 5/7 was not I believe mentioned by Mr. Trower at the time he wrote, nor did I reflect that it was on that price that his calculations were made; but as he observes, it is for principles we are contending, therefore 5/7 will suit my purpose just as well as 5/9½.

To Mr. Trower there appear inconsistencies in my saying that, [‘]if silver be the standard of currency Bank notes were in 1797 at a premm of 24 p. c. and are now at a premm of 14[’]; this is on the supposition of the debased silver currency being the standard, because £100 in bank notes would purchase in 1797 24 p. c. more silver bullion than what was contained in £100 in the debased silver currency and would now at its present price purchase 14 p. c. more. I have said too that ‘if we estimate the value of Bank notes by silver bullion they will be found to be 12 p. c. dist.’ and in another place ‘if silver be the standard currency Bank notes are at a disct. of 11 p.c.’ I am called upon to explain these passages. I meant that if our silver currency was perfectly of its mint weight and consequently as good as an equal quantity of bullion, Bank notes would if estimated by such a medium be 12 p. c. dist.,—but, as our currency is not thus pure, as by law in large paymts a creditor may be forced to accept as much as £25 in debased currency, bank notes were if estimated by our silver currency at a discount of 11 p. c.

In the calculations made by Mr. Trower he attributes all the excess of the market above the mint price of gold to the debasement of the silver coin, except that part of it which is occasioned by an alteration in the relative value of the two metals. He is correct in estimating the alteration in the relative value of gold and silver (at the price he quotes, £4-13/ and 5/7) at 11. 7. 2 pr ct, but he jumps to the conclusion in attributing the balance of the rise of gold above bank notes viz. 8. 1. 3 to the debasement of the silver currency,—he takes for granted that which is the subject of dispute and does not explain to us his data. By the same rule if he were to take the present prices of gold and silver bullion viz. £4. 10/ and 5/9½, he must for the effects of the debasement of the silver coin calculate on no less than 12 p. c. Now he will not say that the debasement of the silver coin has increased since this discussion commenced, therefore he must find out some other cause for the difference between £8. 1. 3 and £12.—

Mr. Trower says that if one metal only were in circulation the market would exceed the mint price in exact proportion to the debasement of the coin, but when it consists of two metals it does not follow that the bullion should be paid for in the depreciated currency. From what has already been said, though we have two metals in circulation one must necessarily be driven from circulation;—and as the depreciated silver is not legal tender no value can be estimated by it.

I am accused of stating an impossible case and it is asked ‘what confidence can be placed upon such an hypothesis? it is a mode of reasoning as unusual as it is unavailing.’ But is it an impossible case to suppose that my debtor should pay me in silver coin? I am contending with this gentleman that Bank notes are at discount, and in proof of my position I state that if my debtor were to pay me his debt in silver he would by law be obliged to pay me as much as would be equal in value to £1120 in Bank notes. Is not this a fair argument to prove that the silver contained in a £1000 is more valuable than £1000 in bank notes? That it is impossible that any man should so pay me whilst the law allows him to pay me in a piece of paper which is called £1000 indeed, but can command as much silver as is contained in £900 only, is the injury of which I complain, and the fact of its being worth no more which is not denied is a proof of the injury.

I agree with Mr. Trower that silver is a legal tender to any amount as well as gold if it be of its mint weight, but this admission on his part is fatal to his argument. With 62 standard shillings which he admits to be a pound of silver I can always purchase a pound of silver bullion. This he does not deny. It is expressly allowed by him that if silver coin be not debased silver bullion paid for in silver cannot exceed its mint price.

But with 62/ in Bank notes I cannot purchase a pound of silver; I am obliged to give £3.7 in that medium for a pound of silver or a premium of £8-1-3. With what consistency can it be maintained that 62 standard shillings, such as are legal tender, are of no more value than £3-2 in bank notes?

If the regulations of our mint had been such that every shilling weighed an ounce,—whilst the shillings were of full weight silver could never rise above a shilling an ounce, and tho’ the currency were debased and every shilling should come to weigh only half an ounce silver would not rise above one shilling an ounce whilst the law protected the seller of bullion from being paid in the debased coin. ‘It is true’ he would say ‘I have sold you silver at a shilling an ounce but the shilling you tender me is not full weight, you must therefore pay me by weight at the mint price of a shilling.’ The seller would therefore ultimately receive two debased shillings tho’ he had sold his silver for one. That such was the state of the silver bullion market we have the experience of near a century. Silver bullion was rarely much above its mint price and the excess which did exist was attributable to the alteration in the relative value of gold and silver. It was paid for in gold, and therefore gold was at its mint value.

End of The Price Of Gold by David Ricardo