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The High Price of Bullion
by David Ricardo
1810
The High Price of Bullion； a Proof of the Depreciation of Bank
Notes。
by David Ricardo
London： Printed for John Murray； 32； Fleet…Street； And Sold by
Every Other Bookseller in Town and Country
1810
Introduction
The writer of the following pages has already submitted some
reflections to the attention of the public； on the subject of
paper…currency； through the medium of the Morning Chronicle。 He
has thought proper to republish his sentiments on this question
in a form more calculated to bring it to fair discussion； and his
reasons for so doing； are； that he has seen； with the greatest
alarm； the progressive depreciation of the paper…currency。 His
fears have been augmented by observing； that by a great part of
the public this depreciation is altogether denied； and that by
others； who admit the fact； it is imputed to any cause but that
which to him appears the real one。 Before any remedy can be
successfully applied to an evil of such magnitude； it is
essential that there should be no doubt as to its cause。 The
writer proposes； from the admitted principles of political
economy； to advance reasons； which； in his opinion； prove； that
the paper…currency of this county has long been； and now is； at a
considerable discount； proceeding from a superabundance in its
quantity； and not from any want of confidence in the Bank of
England； or from any doubts of their ability to fulfil their
engagements。 He does this without reluctance； being fully
persuaded that the country is yet in possession of the means of
restoring the paper…currency to its professed value； viz。 the
value of the coins； for the payment of which it purports to be a
pledge。
He is aware that he can add but little to the arguments which
have been so ably urged by Lord King； and which ought long before
this to have carried conviction to every mind； but he trusts；
that as the evil has become more glaring； the public wil1 not
continue to view； without interest； a subject which yields to no
other in importance； and in which the general welfare is so
materially concerned。
Dec。 1； 1809。
High Price of Bullion； a Proof of the Depreciation of Bank Notes
The precious metals employed for circulating the commodities
of the world； previously to the establishment of banks； have been
supposed by the most approved writers on political economy to
have been divided into certain proportions among the different
civilized nations of the earth； according to the state of their
commerce and wealth； and therefore according to the number and
frequency of the payments which they had to perform。 While so
divided they preserved every where the same value； and as each
country had an equal necessity for the quantity actually in use；
there could be no temptation offered to either for their
importation or exportation。
Gold and silver； like other commodities； have an intrinsic
value； which is not arbitrary； but is dependent on their
scarcity； the quantity of labour bestowed in procuring them； and
the value of the capital employed in the mines which produce
them。
〃The quality of utility； beauty； and scarcity；〃 says Dr
Smith； 〃are the original foundation of the high price of those
metals； or of the great quantity of other goods for which they
can every where be exchanged。 This value was antecedent to； and
independent of their being employed as coin； and was the quality
which fitted them for that employment。〃
If the quantity of gold and silver in the world employed as
money were exceedingly small； or abundantly great； it would not
in the least affect the proportions in which they would be
divided among the different nations … the variation in their
quantity would have produced no other effect than to make the
commodities for which they were exchanged comparatively dear or
cheap。 The smaller quantity of money would perform the functions
of a circulating medium； as well as the larger。 Ten millions
would be as effectual for that purpose as one hundred millions。
Dr Smith observes； 〃that the most abundant mines of the precious
metals would add little to the wealth of the world。 A produce of
which the value is principally derived from its scarcity is
necessarily degraded by its abundance。〃
If in the progress towards wealth； one nation advanced more
rapidly than the others； that nation would require and obtain a
greater proportion of the money of the world。 Its commerce； its
commodities； and its payments； would increase； and the general
currency of the world would be divided according to the new
proportions。 All countries therefore would contribute their share
to this effectual demand。
In the same manner if any nation wasted part of its wealth；
or lost part of its trade； it could not retain the same quantity
of circulating medium which it before possessed。 A part would be
exported； and divided among the other nations till the usual
proportions were re…established。
While the relative situation of counties continued unaltered；
they might have abundant commerce with each other； but their
exports and imports would on the whole be equal。 England might
possibly import more goods from； than she would export to；
France； but she would in consequence export more to some other
country； and France would import more from that country； so that
the exports and imports of all countries would balance each
other； bills of exchange would make the necessary payments； but
no money would pass； because it would have the same value in all
countries。
If a mine of gold were discovered in either of these
countries； the currency of that country would be lowered in value
in consequence of the increased quantity of the precious metals
brought into circulation； and would therefore no longer be of the
same value as that of other countries。 Gold and silver； whether
in coin or in bullion； obeying the law which regulates all other
commodities； would immediately become articles of exportation；
they would leave the county where they were cheap； for those
countries where they were dear； and would continue to do so； as
long as the mine should prove productive； and till the proportion
existing between capital and money in each country before the
discovery of the mine； were again established； and gold and
silver restored every where to one value。 In return for the gold
exported； commodities would be imported； and though what is
usually termed the balance of trade would be against the country
exporting money or bullion； it would be evident that she was
carrying on a most advantageous trade； exporting that which was
no way useful to her； for commodities which might be employed in
the extension of her manufactures； and the increase of her
wealth。
If instead of a mine being discovered in any country； a bank
were established； such as the Bank of England； with the power of
issuing its notes for a circulating medium； after a large amount
had been issued either by way of loan to merchants； or by
advances to government； thereby adding considerably to the sum of
the currency； the same effect would follow as in the case of the
mine。 The circulating medium would be lowered in value； and goods
would experience a proportionate rise。 The equilibrium between
that and other nations would only be restored by the exportation
of part of the coin。
The establishment of the bank and the consequent issue of its
notes therefore； as well as the discovery of the mine； operate as
an inducement to the exportation either of bullion or of coin；
and are beneficial only in as far as that object may be
accomplished。 The bank substitutes a currency of no value for one
most costly； and enables us to turn the precious metals （which；
though a very necessary part of our capital； yield no revenue；）
into a capital which will yield one。 Dr A。 Smith compares the
advantages attending the establishment of a bank to those which
would be obtained by converting our highways into pastures and
corn…fields； and procuring a road through the air。 The highways；
like the coin； are highly useful； but neither yield any revenue。
Some people might be alarmed at the specie leaving the country；
and might consider that as a disadvantageous trade which required
us to part wi