of things in this country, or, in other words, a balance of payments against the country?"

"No, I do not; because I should call gold the general leveller between all commercial nations, and that it invariably brings back the exchanges to their proper level, taking gold against gold, as the standard of value."

"If the Bank of England paid in specie upon demand, do you believe there ever could exist, for any length of time, a material difference between the Mint and the market price of gold?"

"Decidedly not, in my opinion."

120. Mr. Thomas Tooke. Lords' Committee, p. 168—

"By what means do you think that the exchanges could be restored, and the price of gold reduced?"

"By keeping down the Bank issues of their notes to their present amount, and judging, by the course of exchange and of the bullion market, how far any further reduction might be necessary to accomplish that object."

"What do you mean by our circulation being at a level with that of other countries?

"When the price of bullion and the exchanges combined are at, or within a trifle of, par."

"Do you consider a favourable course of exchange as an indication that there is not an excess of paper issues?"

"If that state of exchange is of any considerable duration, it affords a presumption that the issue has not been excessive during that period, but the only undeniable test is the price of gold being that into which the paper is convertible.”

66

It appearing by accounts before the Committee, that from the 13th April, 1804, to the 17th November, 1805, being eighteen months, that the market price of gold was uniformly £4, and that during the same period of eighteen months the course of exchange was uniformly in our favour, are you of opinion that during that time there was an excess of paper issued ?"

"Upon the whole I should answer in the affirmative, as I have before said that I consider the price of gold to be the only unerring test, and that the exchanges, even for moderately long intervals, afford only a presumption."

"State the ground upon which you consider the price of

bullion as a surer test of the question of the excessive issue of paper, than the course of exchanges?"

"Because, if the coin be perfect, and the paper strictly convertible into that coin, there cannot be any inducement to any individual (the Bank issuing the paper excepted) to give more than £3 178. 10d. per oz. for gold of the same standard, while the exchange may be influenced by several circumstances, within the limits in time in which, and of expense at which, the coin could be brought from one country to the other. The exchange may, therefore, fluctuate, while the price of gold remains stationary."

"Do you mean by an excess of paper issued, not an excess above what the demand of internal commerce may require, but an excess above that amount to which you think the paper should be reduced, in order to bring the market price of gold down to the Mint price?"

"I do not know any criterion of the internal demand for a medium of circulation, but that amount which would have circulated if the currency had consisted of coin only, or coin and paper convertible into coin."

121. Mr. Ricardo. Lords' Committee, p. 187

"The Bank has always the power to regulate the price of bullion by limiting or increasing the quantity of their notes."

(Commons' Committee, p. 133.)

"Do you conceive that the paper currency of this country is now excessive, and depreciated in comparison with gold, and that the high price of bullion, and low rate of exchange, are the consequences as well as the sign of that depreciation ?"

"Yes, I do."

"Then, do you consider the high price of gold to be a certain sign of the depreciation of Bank notes?"

"I consider it to be a certain sign of the depreciation of Bank notes, because I consider the standard of the currency to be bullion, and, whether that bullion be more or less valuable, the paper ought to conform to that value, and would under the system we pursued previously to 1797."

"It appears by the accounts already referred to, that the price of gold in this country in April, 1815, was £5 7s., and in April, 1816, £4 1s., being a difference of from 25 to 30 per cent., such

price being always measured in our paper currency; do you know whether, during the same period, any such variation, or any variation, in the price of gold, took place in France, or in any other continental country?"

"It appears to me that in France there can be no variation in the price of the metal, which is the standard of the currency, and, with respect to the variations in the other metal, which is not the standard of the currency, it must at all times be confined to the variations which take place in the relative value of the two metals generally in Europe."

"If then it should appear that during the period referred to no variation whatever has taken place in the price of gold in Paris, would you infer from that circumstance that the variation in the price of gold between April, 1815, and April, 1816, arose from the variation in the value of paper, and not of gold?"

"Every fall in the price of the standard metal is immediately corrected in France, by a reduction of the amount of the circulation; if no similar reduction takes place under the same circumstances in our circulation there must necessarily be a redundancy, and an excess of the market above the Mint price of gold; IN A SOUND STATE OF THE CURRENCY THE VALUE OF GOLD MAY VARY BUT ITS PRICE CANNOT."

"The variation you alluded to in your answer to a former question is what you meant by the depreciation of the paper in your answer to a question before put to you?"

"From whatever cause may arise the difference in the value between paper and gold (and I have enumerated several), I always call the paper depreciated when the market price exceeds the Mint price of gold."

"Do you consider the difference between the market and Mint price of gold to be the criterion of the depreciation of Bank notes?"

"Strictly so."

"Do you not consider that coin or bullion are distinguishable from Bank notes in this important respect, that the coin or bullion, being the medium of universal exchange, operates in the nature of a bill of exchange, whereas the Bank note does not possess this quality; must not, therefore, the value of the coin or bullion follow the rate of the exchange, whilst the Bank note cannot be influenced by such an operation?"

"Certainly; a Bank note not payable in specie is confined to our circulation, and cannot make a foreign payment; a Bank note payable in specie is the same thing as coin or bullion."

"May not this distinguishing quality between the Bank note and the bullion explain the difference of value, without its following that the Bank note is depreciated for any purpose of measuring the value of commodities within this country?"

"No, I think it cannot; the term depreciation, I conceive, does not mean a mere diminution in value, but it means a diminished relative value on a comparison with something which is a standard. And, therefore, I think it quite possible that a Bank note may be depreciated, although it should rise in value, if it did not rise in value in a degree equal to the standard, by which only its depreciation is measured."

"You have stated an opinion, that the contraction of issues of paper would at all times restore the price of gold to the Mint price, and render the exchange favourable to the country; supposing the balance of payments of the country to be against us, in what manner would you have them paid?"

"It appears to me that a reduction in the amount of currency may always restore the price of bullion to the Mint price; but I have not said that that will always restore the exchange to par."

122. Mr. Alexander Baring, afterwards Lord Ashburton. Lords' Committee, p. 10—

"Is it your opinion that the exchanges and the price of gold are affected by the increase or diminution of the circulation of the notes of the Bank of England?"

"I can have no doubt of it whatever; I have always considered the price of bullion and the rates of exchange, which, for this purpose, are the same things, dependent on the paper circulation, and liable to be regulated by its contraction or expansion. I do not mean to say that the foreign exchanges, or the price of bullion, would vary always in proportion to any alteration in the amount of the paper of the Bank of England, or even of the paper of the country at large, because there are various circumstances which, at different times, vary the amount of the circulating medium required for the use of every country; and sometimes, for instance, twenty-five millions of Bank paper

may be too much, when, at another period, thirty millions may be too little. It is the great defect of a paper currency that it cannot adapt itself to this change of circumstances."

"Are you of opinion that the loans which have been contracted for in foreign States, particularly in France, since the peace, have had an unfavourable effect upon the exchanges of this country?"

"The circulation of the country being in its present state, payments abroad, from whatever cause arising, must have an effect upon the exchange."

"What do you mean by the present state of the circulation of the country?"

"I mean that if the circulation were in its former state of payment in specie, that no payments abroad would bring the exchanges materially below their par; but with a paper which has no regulator of its value, it is undoubtedly liable to depreciation by foreign payments, as has been amply proved in the course of the last war."

"Were you at Paris at the time of the great crisis of the Bank of Paris?"

"I was; and I believe the information contained in the Governor's report to the proprietors in January last, as to the effect of the reduction of their issues upon foreign exchanges, and upon the amount of bullion in their vaults, to be correctly stated. The effect of the reduction in their discounts upon the exchanges, and upon their bullion, seems to me singularly applicable to the present question. Their bullion was reduced, by imprudent issues, from 117 millions of francs to 34 millions of francs, and has returned, by more prudent and cautious measures, to 100 millions of francs, at which it stood ten days ago."

"Are we to understand, then, that, in your judgment, considerable importations of grain in years of unfavourable harvests would have an unfavourable effect upon the exchange?"

"I think it would in any country having a circulation of paper, not payable on demand, and where there are no means of contracting its amount, so as to perform for the circulation the same office which a sound circulation of specie would do for itself."

"Would it have the same, or any, effect in a country where the circulation was partly of specie and partly of paper, convertible into specie, as before the Bank restriction?"