PLAIN STATEMENT OF THB BUJLOON QUESTION, IN A LETTER A FRIEND. Br DAVIES GIDDY, Esq. M. P. LONDON : PRINTED FOR JOHN STOCKDALB, PICCADILLT. 1811. Jolm Brcttell, Printer, MarOia'.l-birwrt, UoMcn-S^oar*, Locilon. ADVERTISEMENT. THE following; Letter having procured that approbation., which I was most anxious to obtain from a partial Friend, the entire acquiescence of his judgment; I am induced to lay it, unaltered, before the Public. It pretends to be no more than a plain, simple Exposition of an intricate Subject, which has long occupied my mind, and to which public attention has been loudly called. If it should induce a wish, and afford a clue, for examining the Ques- tion through all its details of Documents, &c. I shall be amply satisfied. The Reader is desired to observe, that Silyer is frequently omitted after Gold, to prevent unnecessary repetitions of words — Gold always meaning the currency of intrinsic ralue, which constitutes a legal Tender; when it is not •bviously used in a restricted sense. PLAIN STATEMENT, &c. Dear Sir, 1 am not at all surprised, that even to a man possessed of your clear understanding, the subject recently brought under discussion by the Bullion Committee, . should appear difficult and abstruse. Much however of the difficulties may be imputed to the contradictory opinions, and opposite reasonings pursued in the various pam- phlets, which seem to have attracted no more than your cursory attention. Many of those opinions, as they stand directly opposed to each other, must be false ; and reasonings which endeavour to establish in- consistent theories from the same facts, can- not all be correct. Moreover, the subjects have generally been treated as matters so 6 remote from the transactions of common life, as to throw a veil of mystery round what might otherwise appear sufficiently distinct. It will be my endeavour, in com- plying with your request for information, to state the various topics, after the most plain and familiar manner, even at the risk of sometimes exciting a smile ; as I am much less anxious on the preient occasion, to dis- play any talents of my own, than to con- vince your judgment. Section I. It is quite obvious that in the earliest stages of civilization, mutual interchanges of commodities must have taken place ; and that mere barter could not have sub- sisted long, without suggesting the absolute necessity for selecting some one article, as a general standard of. value, to which all others might be constantly referred. The qualities requisite for such a standard have been enumerated and discussed : it is certain, that they cannot be found 4 sepa- rately perfect, and all united together in any substance ; but the general consent of nations has given a decided preference to metals ; they are easily divisible, of great durability, capable of being re-united, rea- dily assayed, and change their proportional value, much more slowly, and with less vacillation, than other substances. These qualities have established metals as stan- dards of value ; andamongthem, first, silver, and afterwards gold, as comprising all other advantages under a smaller bulk. Still, however, this is only a preference : other commodities, with less convenience indeed, are capable of performing the same office. Corn might evidently be a common stan- dard, and all commodities would then, be appreciated in given quantities of grain. It will greatly clear and facilitate our future inquiries to suppose this imaginary case : I shall, therefore, continue to place corn by the side of gold ; and endeavour to establish the exact conformity in principle between the two. Section II. When a standard of value is once se- lected, the next care must naturally be, to ascertain the exact quantity and quality of 8 such portions as usually circulate ; this has been denominated coining: a stamp is affixed, testifying a certain portion of the whole to be pure metal, and that each piece is of a certain weight. In the case of corn, the finest kind might be selected, and some certain measure sealed in a bao- ; (I have already anticipated a smile), Either of these will then become a circulating medium, measuring the relative value of all other articles really and nominally, but possessing no proper nominal value, or price of its own. Several most important errors have arisen from a misapprehension of this curious circumstance : I shall therefore en- deavour to explain it in detail. The pound of gold, twenty-two parts out of twenty-four line, is coined into forty- four guineas and a half, at the English mint : a pound of standard gold is therefore always the same, is perfectly identical with, is exactly worth, forty-four guineas and a half; or, substituting for the guinea its other de- nomination, one pound and one shilling, the pound of gold is always worth forty-six pounds fourteen shillings and sixpence; the twelfth part of which sum is three 9 pounds seventeen shillings and ten-pence luil (-penny, the worth of an ounce. This cannot, in accurate language, be called the price of an ounce of gold. Its price in what? The answer must be, in gold; consequently it would remain the same, were gold to be- come so scarce, that a hundredth part of what now represents other commodities, were equivalent to them ; or if its immense abundance were to reduce that metal to a level with tin or lead. I will now suppose the quarter of fine wheat divided into sixty-four parts, and secured in bags of a gallon each, which may be denominated seals ; the quarter of wheat will then always be worth sixty-four seals, let the scarcity or plenty be what it may. Such seals will vary in their power of procuring other commodities, accor- dingly as these are more or less abundant, or as corn happens to be plentiful or scarce ; but corn, in corn, will ever be the same. The price of an ounce of gold cannot with propriety be stated at three pounds seven- teen shillings and ten-pence halfpenny • nor the price of a quarter of wheat at sixty- four seals. The assertions simply declare B 10 two facts ; namely, that the pound of gold has been divided into forty-four guineas and a half; that the quarter of wheat has been divided into sixty-four seals ; and the value is idem per idem in both instances. It will not be difficult, however, to ima- gine cases where gold in coin, or wheat in seals, may be exchanged against other gold, or other corn, with some small variation of quantity. Coinage of the metal, measuring and sealing of the grain, must be attended with some trouble, at least with some delay ; even though the State should defray all the expence. Persons therefore may be willing to exchange gold sufficient to make forty- five or forty-six guineas, for forty-four gui- neas and a half already coined ; or sixty- five, sixty-six, or sixty-seven gallons of wheat, for sixty-four already measured and sealed : on the other hand, if positive institutions, with penal sanctions, or even strong general feeling, prohibit the conversion of these circulating media ; rather than melt the coin, or rather than unseal the corn, indi- viduals may part with the pound of guineas for less than their weight of uncoined gold, 11 or with sixty-four bags of corn for sixty- two, or sixty-three gallons of unsealed grain. Section III. No proposition seems more firmly establish- ed, more universally acknowledged, than that which declares the value of all com- modities to depend on the supply and the demand. The universality of its truth can- not be questioned ; but, the nominal and the apparent effects are widely different, when this principle becomes applicable to all other commodities, or to the standard of value itself. Foreign produce arrives in un- usual abundance, or, from whatever cause, its sale is diminished ; in either case, a cer- tain quantity will be exchanged for a less weight of gold, and its price will be said to fall. Under opposite circumstances, more gold would be required for the same quantity, and its price will be said to rise. But let gold be produced in tenfold quanti- ties, an equal weight will then be purchased by other nations, from those possessing mines, in exchange for less of their own commodities. The pound being still, how- ever, coined into forty-four guineas and a 19 half, or into forty-six pounds fourteen shil- lings and six-pence, its nominal value must be unaltered : but, coined or uncoined, the pound or ounce will now represent less than they were accustomed to do of other com- modities, and all these articles will be said to rise, or to become dear. Reverse the supposition, and gold will not be bought from mining nations but for greater quanti- ties of other articles : gold will still be coined as before, and remain at the same nominal price ; but these commodities will be considered as cheap. Section IV. A custom has universally prevailed, in modern times, of dividing the commerce between different nations into two parts: — the first consisting of those substances which have been selected as the standards of value, and principally gold ; the second inclu- ding all other articles. Exporting more and importing less of the latter division, has been esteemed advantageous : precisely the contrary, respecting the former. Under this head is comprised, the doctrine of ex- changes, more complicated and involved 13 than almost any other subject ; but capable, it would seem, of being explained, in prin- ciple at least, as distinctly, as those account- ed the most plain. I shall continue to sup- pose the circulation of corn. All imports and exports would then be divided into other commodities, and into grain ; with doubtless a similar theory of advantage and disadvantage, from a defect of one, and an excess of the other; at all events, the balance of every account must be paid in corn. The merchant in one country, rather than incur the risk, the expcnce, the delay requisite for transporting this stan- dard of value to the other, where his debt is due, will naturally be led to inquire whe- ther some one has not a demand for corn, on another individual there. If such a person can be found, he will purchase the right of demand, and transfer it to his credi- tor in liquidation of the debt: all others doing the same, it follows, that not the ba- lance of each particular account, but the general balance on all the accounts with both nations, will be left for remittance. If the purchases and sales on either side have amounted to an equal value, estimated in 14 seals of com, it is probable that the desire among individuals for procuring, and dis- posing of demands, will be the same ; in that case, a given quantity of corn in either country, will purchase an order for deliver- ing a like quantity in the other, and the ex- change will be at par. If the sales have been unequal, individuals in that country which has most to pay, eager to avoid the expence and inconvenience of actual remit- tance, will be inclined to purchase de- mands for grain on the other country, at an advanced price ; and the course of exchange will become unfavourable. Individuals in the country making the least purchases will readily find orders on the debtor country, will purchase them cheap, and thus esta- blish a favourable exchange. This is the simple statement of exchange, to which all operations in that department may be re- duced, when difficulties similar to the fol- lowing are removed. The sealed bags of corn in different countries may vary in their con- tents ; the corn may be of several sorts ; or mixed with chaff. If the measures in one province of an empire should contain a twelfth part less than those circulated at 15 the capital, an allowance of 83- per cent, will immediately take place in all trans- actions, to restore the equilibrium. But at last some balance must remain clue, after private accounts have been adjusted to their utmost limit: this cer- tainly will be paid in part by corn ; which, pro tanto, must go towards liqui- dating the debt: the operation produces, however silently and unobserved, effects much more important ; the quantity of circulating medium bein^ diminished in the exporting country, and rendered more abundant in that which receives If seals are sent out, the circulating medium at once undergoes that change ; if the export consists of unsealed corn, a tempta- tion will be created, by the advance in rela- tive value of what is left, to open bags ; and thus convert the sealed grain, into an article of common use ; and either mode will be productive of the same effect. The circu- lating medium having become of more value in comparison with other articles, where its quantity has been diminished, these articles will appear to fall ; in the other country they will appear to rise; from 16 the standard of value really becoming more plentiful, and consequently more cheap. These variations encourage exportation from the debtor state, and check it from the credi- tor. Thus, a very small remittance of the article selected as a standard of value, may, and certainly does, indirectly operate the discharge of debts to many times its own amount ; and frequently turns quite round the course of exchange : so that very little, in compariso *h the amount of ba- lance, is ever likWy to be actually trans- ferred. I surely need not repeat this section over again, substituting gold for wheat, coin for seals, and alloy for chaff, to prove that every peculiar circumstance attached to the medium of circulation, applies equally to whatever substance may have been select- ed for that purpose. It clearly appears that gold and silver divested of this charac- ter, would identify themselves with other articles of common merchandise. Exchanges are at par, when a given quan- tity of the article representing value can be transferred from either country to the other, without any loss, beyond the necessary ex- penccs of brokerage, &c. The coin of one 17 country deficient in quantity, may bear an agio: the coin of another redundant, but guarded by laws, may to a small extent, be depressed ; paper currency not convertible at will, may be depreciated to any extent. All these causes vary the nominal rate with* out affecting the reality. To be perfectly accurate, some small allowance should be made for nations possessed of mines, and for others contiguous to them : and when currencies are of different metals, their actual relative values must be taken into the account. It must surely be established to your satis- faction, that the standard of value has properly no price — That gold in bars, and gold in coin, must always equal one the other, with the trifling variations already mentioned — That the greater or less abun- dance of this article, affects the nominal value of all others in directly the opposite w r ay from their own excess or deficiency — ■ and that its exportation, in payment of debts, liquidates indeed to the amount ; but produces a much greater effect, by de- creasing the nominal rates of all articles at home, and increasing those rates abroad ; thus checking import, already too great, c 18 and forcing an export, sufficient to correct the balance. Section V. The inconvenience of actually paying each balance by remitting the standard substance of value, having induced indivi- duals to purchase credits on the places where they had debts to discharge; a method was very early contrived for facilitating such transactions ; which has proved emi- nently useful, and occurs in almost every transaction of trade. The creditor addresses an open letter to his debtor, requiring him to pay a certain amount of the circulating medium to a third person, or to some other claiming under him ; usually at the expiration of a given time. This letter is denominated a Bill of Exchange, which, being easily trans- ferable from place to place, from one country to another, extends the system of balances, by debts against credits without actual remittance, over an extent of sur- face, far greater than could otherwise be reached ; and has given facilities, beyond what can readily be imagined, to all the parties concerned. 19 From bills of exchange seem to have arisen notes: These are engagements some- times of an individual, more frequently of a company, to pay the bearer on demand, that particular quantity of the article re- presenting ralue, which is mentioned in the note itself. These, equally with bills of exchange, possess the property of ready transmission ; constitute to the issuer a capi- tal advanced to him without interest; and, being applied to precisely the same pur- poses, as the commodity selected for mea- suring all others, they occupy its place, and cause a part of what had been gold in coin, to become an arti^e of commerce : or, on the other suppo^. - they would convert corn in sea!-, to the common uses of grain. The value of these notes being always measured by the quantity of gold, or of corn, for which they may at any time be exchanged; if the quantity of corn in seals be supposed very great, and the sub- stitution by bills extremely rapid, it v. follow that so much corn may suddenly be returned to common use, as for some time at least, to reduce the value of anv o;ven 20 portion in exchange for other commodities : But the annual production of grain being nearly equal to what can ever be in store ; such a reduction of value would correct itself, by diminished tillage, and be of short duration. In the case of gold, it might extend to a great number of years. The extraordinary reduction in value of gold and silver, as compared with other commodities, in modern times, has been occasioned by the two causes, alone capa- ble of producing such an effect — first, by a great increase of the supply ; and se- condly by as great a diminution of the demand. It is obvious that the quantity of gold, of silver, or of other metals produced from mines, cannot, for any considerable time be much less, than what will exchange for the materials used, and for the food, raiment, and general support of all persons employed in working them. Gold and silver had adjusted themselves to this standard in the Old World; when the discovery of America opened mines far more productive, with an equal expenditure of materials and with equal labour ; they were consequently, at 21 first, most advantageous. The mass of gold and silver actually existing in the world, being probably more than the pro- duce of any century from mines, the re- duction of value proceeded with a gentle pace : but after the lapse of a certain num- ber of years, these metals exchanged for no greater quantities of other articles, than were sufficient to support the mines of America, as they had previously done those, less productive, on the other conti- nent. This point once attained, the rela- tive value of gold' or silver to other com- modities, appeared likely to remain as little variable as in former times; and for some time, very little alteration seems to have taken place ; till the second cause came into operation, acting with much more rapidity, and capable of proceeding to an unknown extent. No sooner had govern- ments acquired stability, and private credit established itself on a iirm basis, than bills of exchange almost excluded metallic payments from large transactions ; and the subsequent introduction of notes pro- duced nearly the same effect on transac- tions of smaller magnitude. — Inventions, more or less analagous to notes, have been 22 contrived in most countries ; so that, notwithstanding the great increase of population and of commerce, a far less quantity of coin is now required for circu- lation than at former periods. The super- fluous coin returning to the common stock of mercantile commodities, has of neces- sity reduced the value of these particular articles in comparison with others. More than the mines could yield in many years, has been rapidly poured on the civilized world, and, combining with the effects already produced by the discovery of a New Continent, they have rendered almost ridiculous the nominal values affixed by our ancestors. Thus far, however, all mankind acqui- esced :— the changes were considered as an inevitable consequence of the natural order of things; no one could complain. The mines of America might not have been discovered ; they may be worked out : trade, industry, population, may hereafter increase at a greater rate, than contrivances for di- minishing metallic payments ; and the value of gold and silver, in exchange for other articles, may again increase. Quit* rents, now become nominal, would then ac- 2S quire value; and the creditor, receiving back the stipulated weight of gold, would find himself enabled to command a larger por- tion of labour, or of the products of labour. Section VI. We are now arrived at the last step in the progress of circulating media. — Notes, verbally promising to pay the bearer a cer- tain quantity of gold or silver on demand, have been issued in different countries, under various forms, without really entitling the holder to receive, at his pleasure, the equivalent promised. A great variety of cir- cumstances have accompanied these issues. Some governments, refusing to accept their own notes in payment for taxes, have stamped them with a considerable dis- count, from their first appearance: other governments, accepting them indeed, but forcing notes much faster from their trea- suries than they could possibly return, and increasing the stream to compensate its diminished value, have ultimately cre- ated such a deluge, as in several instances has swept away every establishment of 24 social life, and ingulfed the whole in uni- versal bankruptcy. Notes issued in this country by the Bank of England, are so far identified with the foreign, that they promise to pay, what the holder has no right to demand : they differ, in being circulated by a company of mer- chants, not directly under the controul of Government, and of acknowledged sol- vency. They are said also to differ by not being legal tenders; but this distinc- tion, except in words, may fairly be denied. Public creditors have no other alternative against receiving notes, than not being paid at all ; on them at least they are forced into circulation ; and not a single indivi- dual has been found in fourteen years, amidst the infinite variety of opinions and circumstances existing in that time, who has ventured to decline these notes, and to demand cash. From this state of things arises a most important question: — Is the paper curren- cy of England, not convertible at the will of the holder into a substance of intrinsic worth, the produce of labour, hitherto con- sidered as an article the most proper for 23 measuring others — is this paper currency proceeding in the same career of deprecia- tion, which other non-convertible currencies have uniformly run ? or, is there such an essential difference between them, as will preserve this, though others have perished ? I shall arrange my answers under two heads of inquiry. Can such a currency be depreciated ? Is it not actually depreciated ? Preparatory to the first, let us consider what forms the value of gold above lead, what ren- ders saffron more precious than hay. — Clearly, the labour, the operation, the manure, the extent of ground requisite for producing these mineral or vegetable substances. — If some cheap process could be discovered, for converting materials easily procured into gold, there can be no possible doubt of gold then exchanging for no larger quan- tities of other articles, than what were pro- duced by an equal expence of labour and cost; but if gold should still continue the standard of value, a pound would remain exactly equal to forty-four guineas and a half, or to 46/. 14*. 6d. ; consequently the ounce to 3/. 17*. JO^-c/. Let a still mote 26 easy and less expensive process be found out of creating this metal ; it would evidently become of proportionably less value, perhaps on a level with the cheapest form of iron : but this value in exchange, however small, must soon be common to the whole world ; and all other articles mea- sured by it, would be said to have advanced several hundred-fold. It seems impossible then to deny, that paper notes, manufactured at a much less price, than the most successful alchemy could hope to produce gold, may, like it, suf- fer a reduction of value from excess of quan- tity : and cause an apparent rise in the value of gold itself, and of all other commodities measured by this ideal standard, but, with one essential difference ; the reduction of value in the general intrinsic standard, and the apparent increase of other articles, must be common to all the world ; whilst this is necessarily confined to the particular coun- try issuing the ideal medium. Nor can it be imagined that a substance of no intrinsic worth, unable to travel beyond certain bounds, is capable of possessing so important, so eminent an advantage over 27 metallic currencies, as to remain always of the same value, incapable of change, en- tirely unaffected by the supply or by the demand ; whilst every other article is in perpetual fluctuation. Those who maintain an opinion so very strange and improbable, endeavour to support it in the following manner. These non-convertible notes, they say, are always issued in consequence of proper- ty retained, equal at least in value to their nominal amount; no addition is therefore made to thegencral stock of wealth, and con- sequently no reduction of value can ensue. If other media of circulation, if gold coin were withdrawn and held in deposit to an equal amount, the assertion would un- doubtedly be true : but when the reserve is made from other merchandize, the agorefrate of wealth does indeed remain unchanged, as to the whole; admitting however fluctuations to any extent, among the different parts. Such would be the effect, if some portion of one commodity could be transformed into another: and this appears virtually done, when circulating media become in- creased by the deposit of other articles. If large quantities of coffee were converted 28 into >-;gar, undoubtedly the rates of these two commodities must experience a corre- sponding change. If a part of the West-India produce, were lodged in warehouses for some long indefinite time, and notes were issued on the credit of this stock ; surely the dimi- nished quantity of produce left for sale would advance in price ; and on similar principles the increased quantity of circu- lating medium must cause its value to de- cline. The excess of any commodity seems ne- cessarily to create a competition among sellers, and a corresponding reserve among those who mean to buy; all are aware that articles retained cease to yield profit, and both parties act accordingly. Gold, silver, copper, wine, corn, &c. are observed to fluctuate precisely in this inanner; nor can J discover any magic sufficiently powerful in an ideal medium, for compelling men to retain this one com- modity against their interest. If all the circulating media in the pos- session of an individual were suddenly increased to any extent, he would readily 29 find means for disposing: of it with ad- vantage: but if this increase become uni- versal, there appears to be no reason what- ever for supposing, that the same com- petition and reserve would not affect this article, which is found to advance or to de- preciate every other. If this is admitted, I arrive at the second head : — Are bank notes depreciated ? It is allowed, on all hands, that notes pur- porting to pay 467. I4.v. 6d. or forty-four guineas and a half, can no longer purchase in exchange a pound of gold: but gold is said to be advanced ; large quantities arc hoarded ; much is sent to the armies; per- haps much has been lost ; the desire of possessing gold plate is increased ; the mines are less productive. If these statements were admitted, a creditor might urge: — I lent a certain quantity of gold under an express cn^a