WEBVTT NOTE 6. Monetary and Banking Thought, II: The Bullion Report and the Return to Gold 1 00:00:00.000 --> 00:00:09.600 CHAPTER VI. MONETARY AND BANKING THOUGHT II. THE BULLYON REPORT AND THE RETURN TO GOLD. 2 00:00:09.600 --> 00:00:15.360 1. RICARDO ENTERS THE FRAY. 3 00:00:15.360 --> 00:00:22.420 The bullionist controversy sank into oblivion for five years after 1804, largely because 4 00:00:22.420 --> 00:00:28.300 a cautious policy on the part of the banks of England and Ireland temporarily abated 5 00:00:28.300 --> 00:00:33.440 the monetary inflation and its unwelcome consequences. 6 00:00:33.440 --> 00:00:40.440 Then during 1809, the heating up of the war with Napoleon rekindled the inflation, banknotes 7 00:00:40.440 --> 00:00:49.600 circulation increasing from 17.5 million pounds in November 1808 to 19.8 million pounds the 8 00:00:49.600 --> 00:00:56.920 following August, consequently the pound rapidly depreciated by the summer to a discount of 9 00:00:56.920 --> 00:01:03.920 David Ricardo was first and foremost a monetary economist, and as Professor Peek has reminded 10 00:01:26.920 --> 00:01:51.920 In 1799, Ricardo had come upon the wealth of nations in 1799 and had steeped himself in political economy ever since, his practical life as a wealthy young stock and bond broker naturally leading him to emphasize monetary affairs. 11 00:01:51.920 --> 00:02:06.920 The rapidly growing depreciation of the pound in 1809 led Ricardo to his first published works on economics, beginning with a letter on the price of gold in the Morning Chronicle, 29 August. 12 00:02:06.920 --> 00:02:20.920 Ricardo's letter made a great impact, particularly by his unique blend of hardcore theorizing and impressive command of the empirical and institutional facts of the monetary scene. 13 00:02:20.920 --> 00:02:25.780 His first letter to the Morning Chronicle was followed by two more, with the letters 14 00:02:25.780 --> 00:02:32.800 being shortly expanded into a renowned and highly influential work, Ricardo's first book, 15 00:02:32.800 --> 00:02:38.680 The High Price of Bullion, a proof of the depreciation of banknotes. 16 00:02:38.680 --> 00:02:44.840 The point is summarized in the title, published at the beginning of 1810. 17 00:02:44.840 --> 00:02:51.080 The high price went into no less than four editions by the following year. 18 00:02:51.080 --> 00:02:56.440 The various positions in the bullionist controversy had been set during the first phase of the 19 00:02:56.440 --> 00:03:00.160 debate, 1800 to 1804. 20 00:03:00.160 --> 00:03:06.780 It was Ricardo's intention to revive and establish the bullionist position not only against the 21 00:03:06.780 --> 00:03:13.560 anti-bullionists, but more importantly against the more respected and influential moderate 22 00:03:13.560 --> 00:03:20.100 Anti-Bullionist Doctrine of Henry Thornton. Thornton was the most important theoretical 23 00:03:20.100 --> 00:03:26.720 opponent of bullionism, and so Ricardo set out to take up the cudgels for Lord King, 24 00:03:26.720 --> 00:03:33.760 although, in doing so, he unfortunately, as we shall see, reverted to and elaborated the 25 00:03:33.760 --> 00:03:41.080 rigid and mechanistic approach of John Wheatley. It was Thornton, however, who was his leading 26 00:03:41.080 --> 00:03:47.720 ," and Ricardo set out to convert him, as he wrote in high price. 27 00:03:47.720 --> 00:03:53.280 Mr. Thornton must, therefore, according to his own principles, attribute it, the premium 28 00:03:53.280 --> 00:04:00.200 on gold bullion, to some more permanent cause than an unfavorable balance of trade, and 29 00:04:00.200 --> 00:04:06.280 will, I doubt not, whatever his opinion may formerly have been, now agree that it is to 30 00:04:06.280 --> 00:04:29.280 In the course of the high price, Ricardo set forth clearly the important point that there is no such thing as a shortage of specie, or a great need for more of it, that, in effect, any level of the money supply is optimal. 31 00:04:29.280 --> 00:04:57.280 If the quantity of gold or silver in the world employed as money were exceedingly small or abundantly great, 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 circulating medium as well as the larger. 32 00:04:57.280 --> 00:05:15.280 As soon as the high price was published in January 1810, Ricardo, hitting on the right tactic to spread his views, sent a copy to that leading moderate and influential member of parliament on monetary questions, Francis Horner. 33 00:05:15.280 --> 00:05:30.720 The effect on Horner was electric, and he was moved the following month to introduce and get past a resolution in the House of Commons setting up a select committee to inquire into the cause of the high price of bullion. 34 00:05:30.720 --> 00:05:41.380 The justly famed Bullion Committee of 22 illustrious members of Parliament, chaired by Horner, issued its report in June 1810, 35 00:05:41.380 --> 00:05:48.080 recommending the bullionist policy of a return to the gold standard in two years' time. 36 00:05:48.080 --> 00:05:58.380 The Bullion Committee report touched off an intense controversy within Parliament and in the general pamphlet literature over the following year. 37 00:05:58.380 --> 00:06:14.380 David Ricardo had partially accomplished his objective of converting Henry Thornton, who was perhaps the most influential member of the Bullion Committee, and who co-wrote its report, along with Horner and William Huskisson. 38 00:06:14.380 --> 00:06:20.700 Characteristically, it was not Ricardo's bullionist theory that had swayed Thornton, 39 00:06:20.700 --> 00:06:25.700 but the impressive marshalling of evidence that convinced him at long last that this 40 00:06:25.700 --> 00:06:32.300 particular inflation and depreciation were being caused by overissue of Bank of England 41 00:06:32.300 --> 00:06:33.300 notes. 42 00:06:33.300 --> 00:06:40.740 Thornton, in short, had joined his disciple Horner before him in remaining a moderate, 43 00:06:40.740 --> 00:06:47.980 and being converted from anti-bullionist to bullionist on empirical grounds. 44 00:06:47.980 --> 00:06:53.780 In the parliamentary debate on the bullion report in May 1811, Thornton conceded that 45 00:06:53.780 --> 00:07:00.740 the idea of poor harvests and subsidies to foreigners being the cause of the depreciation 46 00:07:00.740 --> 00:07:06.940 was an error to which he himself had once inclined, but he stood corrected after a fuller 47 00:07:06.940 --> 00:07:10.660 consideration of the subject. 48 00:07:10.660 --> 00:07:16.140 Thornton's conversion was all the more remarkable because his own bank was financially tied 49 00:07:16.140 --> 00:07:22.580 to the fiat expansion of bank credit, and the mere issuance of the report, even though 50 00:07:22.580 --> 00:07:28.580 it did not carry the day in Parliament, was enough to cause a minor run on Thornton's 51 00:07:28.580 --> 00:07:29.580 bank. 52 00:07:29.580 --> 00:07:35.180 Furthermore, a period of difficulties that were never fully overcome now set in for the 53 00:07:35.180 --> 00:07:43.660 Bank until it finally failed in 1825, ten years after Thornton's death. 54 00:07:43.660 --> 00:07:46.780 Thornton's conversion, however, was only empirical. 55 00:07:46.780 --> 00:07:52.740 Thus, in the course of the debates on the bullion report, he still brought up the bogey 56 00:07:52.740 --> 00:07:59.220 of deflation and suggested that the pound be devalued to its existing market levels 57 00:07:59.220 --> 00:08:05.620 in order to ward off a deflation when resumption finally arrived. 58 00:08:05.620 --> 00:08:11.740 Since Ricardo's main focus was combating the views of Henry Thornton, it is not surprising 59 00:08:11.740 --> 00:08:18.140 that he overreacted and, instead of adopting the complete, sophisticated bullionism of 60 00:08:18.140 --> 00:08:24.960 Lord King, went on to the rigid and mechanistic doctrines of John Wheatley. 61 00:08:24.960 --> 00:08:47.960 In particular, in order to rebut Thornton completely, Ricardo believed that the dispute had to be elevated totally to the theoretical plane, so that he felt forced to maintain that only monetary factors, even in the short run, could ever have any influence whatever on prices or exchange rates. 62 00:08:47.960 --> 00:09:02.960 Money, Ricardo felt obliged to maintain, is ever and always, even in the short run, totally neutral to the rest of the economy, to everything, that is, except overall prices. 63 00:09:02.960 --> 00:09:13.960 As Professor Peek puts it, in large part Ricardo's early works represented a reaction to Henry Thornton's non-neutral monetary economics. 64 00:09:13.960 --> 00:09:26.960 And, in challenging Thornton's views, Ricardo committed himself to an explanation of output, value and distribution in real terms, consistent with neutral money. 65 00:09:26.960 --> 00:09:41.960 To accomplish his impressive, if unbalanced, task, David Ricardo had to concentrate exclusively on long-run equilibrium states, and to ignore the market processes towards them. 66 00:09:41.960 --> 00:09:48.760 In that way, Ricardo set the stage for his later approach to all economic questions. 67 00:09:48.760 --> 00:10:00.960 Ricardo summarized his methodology in the course of his famous correspondence with Thomas Robert Malthus on monetary questions from 1811 to 1813. 68 00:10:00.960 --> 00:10:05.960 You always have in mind the immediate and temporary effects. 69 00:10:05.960 --> 00:10:12.960 I fix my whole attention on the permanent state of things which will result from them. 70 00:10:12.960 --> 00:10:18.960 For money to be strictly neutral to everything except a general level of prices, 71 00:10:18.960 --> 00:10:26.960 Ricardo had to assert a strict, radical dichotomization between the monetary and the real worlds, 72 00:10:26.960 --> 00:10:35.840 of Worlds, with values, relative prices, production and incomes determined only in the real sphere, 73 00:10:35.840 --> 00:10:41.320 while overall prices were set exclusively in the monetary sphere. 74 00:10:41.320 --> 00:10:44.720 And never the two spheres could meet. 75 00:10:44.720 --> 00:10:51.380 And here began the fateful and all-pervasive modern fallacy of a severe split between two 76 00:10:51.380 --> 00:10:58.500 Two hermetically sealed worlds, the micro and the macro, each with its own determinants 77 00:10:58.500 --> 00:11:05.900 and laws. Furthermore, as Salerno writes, it was Ricardo's strong affirmation of the 78 00:11:05.900 --> 00:11:11.900 neutral money doctrine in his bullionist writings that was to serve as the source of the classical 79 00:11:11.900 --> 00:11:21.020 conception of money as merely a veil hiding the real phenomena and processes of the economy. 80 00:11:21.020 --> 00:11:30.020 In particular, if money is neutral, then value or relative prices had to have only real determinants, 81 00:11:30.020 --> 00:11:35.900 which Ricardo discovered in embodied quantities of labor. 82 00:11:35.900 --> 00:11:42.740 In the macro area, in contrast, Ricardo set forth a mechanistic, strictly proportional 83 00:11:42.740 --> 00:11:50.500 causal relation between the quantity of money and the level of prices, a strictly proportionate 84 00:11:50.500 --> 00:11:59.060 Quantity Theory of Money. Again, Peek summed it up very well. Theoretically, Ricardo challenged 85 00:11:59.060 --> 00:12:05.380 Thornton by developing a strict quantity theory neutral money analysis, which resulted in 86 00:12:05.380 --> 00:12:12.820 his well-known dichotomization of the economy into goods and money sectors, with no role 87 00:12:12.820 --> 00:12:19.620 for money other than to determine the general level of prices. Analytically, this required 88 00:12:19.620 --> 00:12:29.620 asked him to convert Thornton's model into a dichotomized model by demonstrating real market equilibrium independent of the money market. 89 00:12:29.620 --> 00:12:37.620 A fundamental theme linking all of Ricardo's later works is the continuing search for neutral money. 90 00:12:37.620 --> 00:12:44.780 Thus, Ricardo writes that the value of the circulating medium of every country bears 91 00:12:44.780 --> 00:12:49.980 some proportion to the value of the commodities which it circulates. 92 00:12:49.980 --> 00:12:57.060 No increase or decrease of its quantity, whether consisting of gold, silver or paper money, 93 00:12:57.060 --> 00:13:03.380 can increase or decrease its value above or below this proportion. 94 00:13:03.380 --> 00:13:09.420 If the mine cease to supply the annual consumption of the precious metals, money will become 95 00:13:09.420 --> 00:13:15.780 more valuable, and a smaller quantity will be employed as a circulating medium. 96 00:13:15.780 --> 00:13:22.640 The diminution in the quantity will be proportioned to the increase of its value. 97 00:13:22.640 --> 00:13:29.820 The value of inconvertible paper money, declared Ricardo, becomes determined in the same way. 98 00:13:29.820 --> 00:13:37.000 Hence, under any restriction of specie payment, any excess of bank notes would depreciate 99 00:13:37.000 --> 00:13:42.340 the value of the circulating medium in proportion to the excess. 100 00:13:42.340 --> 00:13:47.940 If 20 millions had been the circulation of England before the restriction, and if the 101 00:13:47.940 --> 00:13:54.760 bank were successively to increase it to 50 or 100 millions, the increased quantity would 102 00:13:54.760 --> 00:14:01.520 would be all absorbed in the circulation of England, but would be in all cases depreciated 103 00:14:01.520 --> 00:14:05.440 to the value of the 20 millions. 104 00:14:05.440 --> 00:14:11.260 Under inconvertible currency, furthermore, strict proportionality then gets carried over 105 00:14:11.260 --> 00:14:14.700 to the determination of exchange rates. 106 00:14:14.700 --> 00:14:20.980 Like Wheatley, Ricardo concluded that only monetary factors ever determine the exchange 107 00:14:20.980 --> 00:14:27.180 Exchange Rate, and hence that the depreciation of the exchange rate must precisely measure 108 00:14:27.180 --> 00:14:34.820 the extent of monetary inflation and of the over-issue of paper money. In the same way 109 00:14:34.820 --> 00:14:41.160 and to the same precise proportion, the rise in the price of bullion and the rise in prices 110 00:14:41.160 --> 00:14:49.000 of commodities will also reflect the self-same over-issue and depreciation. 111 00:14:49.000 --> 00:14:54.520 David Ricardo's arrival on the monetary scene brought him into the first rank of bullionist 112 00:14:54.520 --> 00:15:00.920 champions, not because of anything original he had to say, but because of his empirical 113 00:15:00.920 --> 00:15:07.680 knowledge of money, his grasp of the literature, and his willingness to refute in detail the 114 00:15:07.680 --> 00:15:14.200 arguments of the numerous distinguished men of the anti-bullionist establishment ranks. 115 00:15:14.200 --> 00:15:23.160 Thus, in the course of the storm over the bullion report, Charles Bozenkett, 1769-1850, 116 00:15:23.160 --> 00:15:28.840 a London merchant governor of the South Seas Company, as well as a son of a former governor 117 00:15:28.840 --> 00:15:34.880 of the Bank of England, wrote a pamphlet attacking the report, sneering at it from the point 118 00:15:34.880 --> 00:15:40.960 of view of a practical man scoffing at wild and irrelevant theorists. 119 00:15:40.960 --> 00:15:46.280 In his Practical Observations on the Report of the Bullion Committee, two editions in 120 00:15:46.280 --> 00:15:54.880 1810, Bosonkett's pamphlet drew a famous reply to Mr. Bosonkett's Practical Observations 121 00:15:54.880 --> 00:16:00.240 1811 by Ricardo the following year. 122 00:16:00.240 --> 00:16:05.440 Ricardo's pamphlet was a brilliant and effective polemic in which he marshaled an impressive 123 00:16:05.440 --> 00:16:14.040 in the course of a lofty defense of high and mechanistic theory as against the dim-wittedness 124 00:16:14.040 --> 00:16:17.640 of self-proclaimed practical men. 125 00:16:17.640 --> 00:16:24.120 The reply was particularly effective because Ricardo could match Bozenkett in realistic 126 00:16:24.120 --> 00:16:30.480 practical knowledge, a ploy which led many people to overlook the strident unrealism 127 00:16:30.480 --> 00:16:33.960 of his theoretical apparatus. 128 00:16:33.960 --> 00:16:40.840 In some, Jacob Hollander rightly explained Ricardo's influence on behalf of bullionism 129 00:16:40.840 --> 00:16:48.000 not as the result of any original contributions, but because, not content with restating a 130 00:16:48.000 --> 00:16:55.880 positive theory, Ricardo set up in succession and demolished in turn, sometimes completely, 131 00:16:55.880 --> 00:17:02.800 always plausibly, every opposed argument in a written criticism or current opinion. 132 00:17:02.800 --> 00:17:09.960 A theory which had a dignified parentage was refurbished, defended from doctrinal attacks, 133 00:17:09.960 --> 00:17:16.480 justified by contemporary events, vitalized by urgent timeliness, and vindicated against 134 00:17:16.480 --> 00:17:18.360 current criticism. 135 00:17:18.360 --> 00:17:24.980 A standard was planted, the field cleared, and an alert and resourceful champion held 136 00:17:24.980 --> 00:17:27.560 the list. 137 00:17:27.560 --> 00:17:33.440 But even at this early date, the hard-money champion was beginning to buckle and, if not 138 00:17:33.440 --> 00:17:37.360 abandon, at least to flounder in the cause. 139 00:17:37.360 --> 00:17:43.720 For in his reply to Malthus' review of the high price in the Edinburgh Review, reprinted 140 00:17:43.720 --> 00:17:49.800 as an appendix to the fourth edition, Ricardo advanced a plan for ending the restriction 141 00:17:49.800 --> 00:17:53.160 that abandoned the heart of the gold standard. 142 00:17:53.160 --> 00:18:01.160 Specifically, he proposed that the pound sterling be redeemable in gold bullion rather than in coin. 143 00:18:01.160 --> 00:18:10.160 But a gold bullion standard means that the average person cannot redeem paper money in a commodity medium of payment, 144 00:18:10.160 --> 00:18:17.160 and that gold redemption is confined to a handful of wealthy international financiers. 145 00:18:17.160 --> 00:18:23.840 Ricardo's desertion of the gold coin standard was motivated first by a Smithian desire to 146 00:18:23.840 --> 00:18:31.320 economize on the gold metal, and more prominently by a fear of deflation that was conspicuously 147 00:18:31.320 --> 00:18:39.280 inconsistent with his dismissal of all non-price-level effects of changes in the supply of money. 148 00:18:39.280 --> 00:18:46.040 In this phobia about deflation and in this inconsistency, Ricardo followed his mentor 149 00:18:46.040 --> 00:18:50.960 or in Mechanistic Bullionism, John Wheatley. 150 00:18:50.960 --> 00:18:57.560 In addition to Francis Horner, another person inspired by Ricardo's reawakening of the bullion 151 00:18:57.560 --> 00:19:04.120 controversy was Robert Muschett, 1782-1818. 152 00:19:04.120 --> 00:19:09.560 A Scotsman born near Edinburgh, young Muschett had entered the service of the Royal Mint 153 00:19:09.560 --> 00:19:16.360 in 1804 and by the time of the new controversy had risen to the post of First Clerk to the 154 00:19:16.360 --> 00:19:19.200 Master of the Mint. 155 00:19:19.200 --> 00:19:25.280 Mushett's An Inquiry into the Effects Produced on the National Currency and Rates of Exchange 156 00:19:25.280 --> 00:19:32.040 by the Bank Restriction Bill came out early in 1810 before the appointment of the Bullion 157 00:19:32.040 --> 00:19:36.600 Committee and went quickly into three editions. 158 00:19:36.600 --> 00:19:44.120 was able to add his expertise at the Royal Mint to the hardcore bullionist cause. 159 00:19:44.120 --> 00:19:46.920 2. 160 00:19:46.920 --> 00:19:53.840 The Storm over the Bullion Report Although Francis Horner, who formed and chaired 161 00:19:53.840 --> 00:20:00.240 the famed Bullion Committee, was a Whig, the Committee itself was scarcely stacked against 162 00:20:00.240 --> 00:20:02.240 the Tory Government. 163 00:20:02.240 --> 00:20:09.920 On the contrary, the Committee's 22 members included seven Whigs, seven clear-cut Tories, 164 00:20:09.920 --> 00:20:16.720 including even the Prime Minister and Chancellor of the Exchequer, Spencer Percival, and eight, 165 00:20:16.720 --> 00:20:22.920 including Thornton and Alexander Bering of the renowned banking family, who were independents, 166 00:20:22.920 --> 00:20:26.200 friendly to the Tory administration. 167 00:20:26.200 --> 00:20:31.280 Of the co-authors of the report, Thornton was still considered at the time of appointment 168 00:20:31.280 --> 00:20:37.800 of the Committee, perhaps the leading defender of Bank Restriction, and William Huskisson, 169 00:20:37.800 --> 00:20:45.320 1770-1830, was a leading Tory member of Parliament of the canning wing of the party, who had 170 00:20:45.320 --> 00:20:51.560 been a member of the Tory government for several years until 1809. 171 00:20:51.560 --> 00:20:57.960 The modal committee member may be summed up as a thoughtful Tory, a supporter of the restriction, 172 00:20:57.960 --> 00:21:03.640 Now Troubled by the Developing Inflation and Depreciation of the Pound 173 00:21:03.640 --> 00:21:09.720 While David Ricardo was acquainted with Thornton, both had been co-founders of the London Institution 174 00:21:09.720 --> 00:21:17.000 and its Library in 1805, his only close friend on the Bullion Committee was another London 175 00:21:17.000 --> 00:21:27.160 Institution co-founder, Richard Sharp, 1759-1835, a Whig and West Indies merchant. 176 00:21:27.160 --> 00:21:32.080 The only member of the committee who shared Ricardo's bullionist hostility to the Bank 177 00:21:32.080 --> 00:21:35.240 of England was Henry Brooke Parnell. 178 00:21:35.240 --> 00:21:41.760 Indeed, Thornton's presence on the committee and support for the report in Parliament shocked 179 00:21:41.760 --> 00:21:49.000 the anti-bullionists and led his wife to offer embarrassed explanations to their friends. 180 00:21:49.000 --> 00:21:54.620 Frank W. Fetter summed it up clearly when he wrote that the position of Thornton and 181 00:21:54.620 --> 00:21:59.860 President Huskisson in the Bullion Committee and in their subsequent defense of its report 182 00:21:59.860 --> 00:22:03.720 was taken more in sorrow than in partisanship. 183 00:22:03.720 --> 00:22:09.400 It was the outgrowth of their increasing concern over the apathy of the government and the 184 00:22:09.400 --> 00:22:15.200 bank about the condition of the foreign exchanges and the bullion market, and over the support 185 00:22:15.200 --> 00:22:21.140 by the bank and the government spokesmen for the real bills doctrine in its most extreme 186 00:22:21.140 --> 00:22:27.980 inform, that is, that as long as the bank's advances were made only on sound commercial 187 00:22:27.980 --> 00:22:36.540 assets, the amount of the advances could have no effect on prices or the foreign exchanges. 188 00:22:36.540 --> 00:22:43.260 Most important, the bullion report itself was neither Kingian nor Ricardian, but squarely 189 00:22:43.260 --> 00:22:47.700 in the Thornton-Horner moderate bullionist camp. 190 00:22:47.700 --> 00:23:16.340 Thornton himself only supported the committee's call for resumption of specie payment in protest 191 00:23:16.340 --> 00:23:22.480 at the failure of the bank and the government to be chastised and to agree to restricting 192 00:23:22.480 --> 00:23:24.800 further issuance of money. 193 00:23:24.800 --> 00:23:30.340 As for Ricardo, he only became the leading champion of the committee after the policy 194 00:23:30.340 --> 00:23:36.820 conclusions of its report supported his call for resumption of payment in specie. 195 00:23:36.820 --> 00:23:43.540 Indeed, Malthus, in his defense of the report, hailed the committee for taking his own moderate 196 00:23:43.540 --> 00:23:50.820 Stance rather than adopting the Ricardian error of holding a solely monetary explanation 197 00:23:50.820 --> 00:23:53.620 of the depreciation. 198 00:23:53.620 --> 00:24:00.300 The report was approved in the full bullion committee by a vote of 13-6 and was submitted 199 00:24:00.300 --> 00:24:04.660 to Parliament on 8 June 1810. 200 00:24:04.660 --> 00:24:11.060 While Prime Minister Percival was one of the six voting nay, along with his paymaster general 201 00:24:11.060 --> 00:24:31.020 In a few months, however, the administration reversed its course. 202 00:24:31.020 --> 00:24:35.940 The best evidence suggests that a command decision was made by the Government and the 203 00:24:35.940 --> 00:24:42.240 The Bank of England in late August or early September to launch an all-out assault upon 204 00:24:42.240 --> 00:24:44.640 the bullion report. 205 00:24:44.640 --> 00:24:53.240 Leading the battle in Parliament for the government was Nicholas van Sittert, 1766 to 1851, many 206 00:24:53.240 --> 00:24:59.600 times Secretary to the Treasury and soon to be Chancellor of the Exchequer. 207 00:24:59.600 --> 00:25:05.960 In the 1809 debate on resumption of specie payment, van Sittert had coined the patriotic 208 00:25:05.960 --> 00:25:12.420 if irrelevant and absurd argument that the national resources of the country sufficed 209 00:25:12.420 --> 00:25:17.720 for backing the currency so that there was no need for gold. 210 00:25:17.720 --> 00:25:24.480 In the bullion report debate, van Sittert pushed a spectrum of anti-bullionist arguments. 211 00:25:24.480 --> 00:25:28.960 First, that immediate resumption was, as usual, inexpedient. 212 00:25:28.960 --> 00:25:35.760 Second, that the restriction had nothing whatsoever to do with the depreciation of the pound. 213 00:25:35.760 --> 00:25:42.040 And third, that Bank of England notes were esteemed every bit as highly as gold coin, 214 00:25:42.040 --> 00:25:47.440 an assertion so preposterous and so out of tune with the facts as to bring down upon 215 00:25:47.440 --> 00:25:54.760 Open Ridicule by George Canning, the leader of a Tory faction out of power 216 00:25:54.760 --> 00:26:00.400 Masterminding and orchestrating the campaign against the bullion report for Percival and 217 00:26:00.400 --> 00:26:05.680 van Sittert were four shadowy aides and advisers. 218 00:26:05.680 --> 00:26:14.360 One was John Charles Harrys, 1778-1855, son of a London merchant and long-time treasury 219 00:26:14.360 --> 00:26:20.400 Official, at this time private secretary to the Chancellor of the Exchequer and a past 220 00:26:20.400 --> 00:26:24.740 and future top financial advisor of Tory leaders. 221 00:26:24.740 --> 00:26:30.000 He was himself to be a Chancellor of the Exchequer in later years. 222 00:26:30.000 --> 00:26:36.240 A second figure was Henry Beek, professor of modern history at Oxford, friend of Van 223 00:26:36.240 --> 00:26:41.160 Sittert and prominent advisor of Tory politicians. 224 00:26:41.160 --> 00:26:51.320 A particularly mysterious but influential colleague was Jasper Atkinson, 1761-1844, about whom 225 00:26:51.320 --> 00:26:56.800 little is known except that he was, for a quarter century, an official advisor to the 226 00:26:56.800 --> 00:27:04.960 government and to the bank, and wrote thirteen pamphlets from 1802 to the late 1820s in support 227 00:27:04.960 --> 00:27:08.000 of government and bank policy. 228 00:27:08.000 --> 00:27:12.880 It seems that he was a country banker and active in trade with Holland. 229 00:27:12.880 --> 00:27:17.680 He of course published a pamphlet in opposition to the Bullion Report. 230 00:27:17.680 --> 00:27:23.840 Atkinson prepared the pamphlet at the instigation of Harry's and was assisted by his old friend 231 00:27:23.840 --> 00:27:27.520 and advisor, Henry Beek. 232 00:27:27.520 --> 00:27:34.880 Perhaps even more curious was the leading role of a Geneva refugee, Sir Francis de Venois, 233 00:27:34.880 --> 00:27:40.800 of Van Sittert, who had been a British secret agent in Europe and had been a confidential 234 00:27:40.800 --> 00:27:45.380 advisor to the British government on relations with France. 235 00:27:45.380 --> 00:27:51.120 It was Devernoy who first waved the bloody shirt against the bullion report by dragging 236 00:27:51.120 --> 00:27:57.240 into the debate the palpably false charge that the report had given aid and comfort 237 00:27:57.240 --> 00:28:03.640 to the Napoleonic enemy, had stimulated Napoleon to strengthen his embargo measures against 238 00:28:03.640 --> 00:28:10.880 of Great Britain, and had emboldened the United States to take a nasty turn toward England. 239 00:28:10.880 --> 00:28:16.760 This effective, if mendacious, red herring was taken up in Parliament by Van Sittert 240 00:28:16.760 --> 00:28:24.160 and by a leader of the Anglo-Irish establishment, Robert Stuart, Viscount Castle Ray, the Marquis 241 00:28:24.160 --> 00:28:29.960 of Londonderry, 1769-1822. 242 00:28:29.960 --> 00:28:35.660 Indeed the major parliamentary motif of the critics of the report was that the restriction 243 00:28:35.660 --> 00:28:40.280 was vital for pursuing the war effort against France. 244 00:28:40.280 --> 00:28:45.680 Prime Minister Percival charged that adopting the report would be tantamount to a declaration 245 00:28:45.680 --> 00:28:51.260 that they would no longer continue those foreign exertions which they had hitherto considered 246 00:28:51.260 --> 00:28:54.560 indispensable to the security of the country. 247 00:28:54.560 --> 00:28:59.700 If parliament should adopt the report and its policies, Percival thundered, they would 248 00:28:59.700 --> 00:29:07.120 disgrace themselves forever by becoming the voluntary instruments of their country's ruin. 249 00:29:07.120 --> 00:29:14.040 Ringing changes on this wartime necessity stab in the back theme were Viscount Casselray, 250 00:29:14.040 --> 00:29:20.680 the High Tory Foreign Secretary and War Secretary Robert Banks Jenkinson, the Earl of Liverpool 251 00:29:20.680 --> 00:29:28.720 School, 1770-1828, and the Treasurer of the Navy and former Secretary to the Treasury, 252 00:29:28.720 --> 00:29:38.160 George Rose, 1744-1818, who also contributed two pamphlets to the controversy. 253 00:29:38.160 --> 00:29:45.080 Rose was the highest of high Tories, a friend of King George III, an opponent of parliamentary 254 00:29:45.080 --> 00:29:52.160 Reform, an extreme pro-war advocate, a supporter of the Corn Laws, and an adversary of the 255 00:29:52.160 --> 00:29:54.800 abolition of slavery. 256 00:29:54.800 --> 00:30:03.240 In late 1810 and early 1811, a host of pamphlets were published, attacking the Bullion Report, 257 00:30:03.240 --> 00:30:09.560 and many of them, both signed and anonymous, were products of the behind-the-scenes campaign 258 00:30:09.560 --> 00:30:12.880 of the governmental and bank circles. 259 00:30:12.880 --> 00:30:18.660 In addition to Atkinson's pamphlet, Harry's weighed in with an anonymous tract, a review 260 00:30:18.660 --> 00:30:25.040 of the controversy respecting the high price of bullion and the state of our currency. 261 00:30:25.040 --> 00:30:31.080 Charles Bozenkett's Practical Observations, rebutted by Ricardo, was another product of 262 00:30:31.080 --> 00:30:33.720 this campaign. 263 00:30:33.720 --> 00:30:38.040 Particularly important in this effort was the publication of a speech by a prominent 264 00:30:38.040 --> 00:30:46.740 Attorney, Randall Jackson, 1757-1837, which purported to be the views of a concerned bank 265 00:30:46.740 --> 00:30:48.600 stockholder. 266 00:30:48.600 --> 00:30:55.320 In reality, Jackson was apparently hired by the bank to present its case, sub rosa, against 267 00:30:55.320 --> 00:30:57.400 the report. 268 00:30:57.400 --> 00:31:01.360 Jackson presented the state-of-the-art critiques by the government. 269 00:31:01.360 --> 00:31:04.580 The report had greatly injured commercial credit. 270 00:31:04.580 --> 00:31:10.440 The committee was dominated by chronic oppositionists to the government, and it is impossible for 271 00:31:10.440 --> 00:31:17.080 banknotes ever to be excessive or to have higher prices than par because they were issued 272 00:31:17.080 --> 00:31:23.580 only against value received, a non sequitur if there ever was one. 273 00:31:23.580 --> 00:31:29.540 Indeed, the main economic arguments of bank spokesmen before the bullion committee and 274 00:31:29.540 --> 00:31:35.160 in the parliamentary debates by men such as Governor John Whitmore and Deputy Governor 275 00:31:35.160 --> 00:31:43.060 John Pierce were an extreme, almost absurd version of the real bills doctrine, namely 276 00:31:43.060 --> 00:31:50.980 that if bank loans were issued on short-term bills of real value representing real transactions, 277 00:31:50.980 --> 00:31:57.860 then bank note issue can never be excessive and never have any inflationary or depreciating 278 00:31:57.860 --> 00:32:04.860 in effect on the pound. Walter Badgett was later to call these arguments almost classical 279 00:32:04.860 --> 00:32:12.100 by their nonsense. Perhaps the acme of this nonsense was the pamphlet of the Tory Commissioner 280 00:32:12.100 --> 00:32:21.460 of Audit, Francis Percival Elliott, circa 1756 to 1818, who went so far as to maintain 281 00:32:21.460 --> 00:32:26.660 that the problem with Huskisson's argument was that he considered the gold guinea to 282 00:32:26.660 --> 00:32:33.940 be the standard of value, whereas it is actually the pound sterling. According to Elliott, 283 00:32:33.940 --> 00:32:41.180 the pound, precisely because it is fiat money, is the ideal money of account, because it 284 00:32:41.180 --> 00:32:49.540 is by definition invariable in value. On the other hand, Elliott opined, gold or silver, 285 00:32:49.540 --> 00:32:54.980 being made of a substantial commodity, must be variable in value. 286 00:32:54.980 --> 00:33:01.420 Meanwhile, a different kind of critic of the report appeared prominently in the pamphlet 287 00:33:01.420 --> 00:33:04.340 literature and in Parliament. 288 00:33:04.340 --> 00:33:13.660 The eccentric Sir John Sinclair, 1754-1835, first and also current President of the Board 289 00:33:13.660 --> 00:33:19.660 of Agriculture, was born to a Scottish noble family and was educated at the universities 290 00:33:19.660 --> 00:33:27.260 Studies of Edinburgh and Glasgow, graduating from Trinity College, Oxford in 1775. 291 00:33:27.260 --> 00:33:35.340 A member of Parliament from 1780 until 1811, Sinclair was a man of great energy and enthusiasm 292 00:33:35.340 --> 00:33:39.540 and a prolific writer in the causes he held dear. 293 00:33:39.540 --> 00:33:46.400 In his lifetime, Sinclair published no less than 367 tracts and pamphlets. 294 00:33:46.400 --> 00:33:52.280 An advocate of parliamentary reform, Sinclair championed the cause of peace and wrote several 295 00:33:52.280 --> 00:33:58.640 pamphlets attacking Pitt's war policy and calling for peace with England's enemies. 296 00:33:58.640 --> 00:34:03.640 He even went so far as to publish a booklet calling for Britain's surrender of Gibraltar 297 00:34:03.640 --> 00:34:08.840 to Spain during the American Revolutionary War. 298 00:34:08.840 --> 00:34:14.340 Sinclair's prime enthusiasm was for agriculture, an art he learned from managing his Scottish 299 00:34:14.340 --> 00:34:19.700 of British Estates. Not only was he the first president of the Board of Agriculture, but 300 00:34:19.700 --> 00:34:26.800 he also founded the British Wool Society. Sinclair was also engrossed in statistical 301 00:34:26.800 --> 00:34:34.200 and monetary and fiscal questions. An indefatigable collector of statistics, Sinclair actually 302 00:34:34.200 --> 00:34:40.660 introduced the words statistics and statistical into the English language, and during the 303 00:34:40.660 --> 00:35:10.660 In the decade of the 1790s, he collected and published in 21 volumes a statistical account of Scotland More relevant to our concerns, Sinclair had published from 1785 to 1790 a three-volume history of the public revenues of the British Empire In this work, Sinclair had displayed a determined and all-out zeal for monetary inflation and government spending 304 00:35:10.660 --> 00:35:22.660 As soon as the Bullion Report was issued, Sinclair wrote to Prime Minister Percival asking help for reprinting his work as part of the task of rebutting the Bullion Committee. 305 00:35:22.660 --> 00:35:32.660 You know my sentiments regarding the importance of paper circulation, he wrote to Percival, which is, in fact, the basis of our prosperity. 306 00:35:32.660 --> 00:35:38.560 In fact, Sinclair's observations on the report of the Bullion Committee, published in September 307 00:35:38.560 --> 00:35:45.980 1810, was the very first of many pamphlet attacks on the Bullion Report. 308 00:35:45.980 --> 00:35:51.900 A storm of pamphlets raged over the Bullion Report, hoping to influence the parliamentary 309 00:35:51.900 --> 00:35:56.180 decision as well as the tides of public opinion. 310 00:35:56.180 --> 00:35:59.700 David Ricardo was a host unto himself. 311 00:35:59.700 --> 00:36:06.980 In the month of September 1810 alone, Ricardo in the Morning Chronicle defended the conclusions 312 00:36:06.980 --> 00:36:13.260 of the report, taking of course the hardcore Ricardian line, attacked the pamphlet of Sir 313 00:36:13.260 --> 00:36:19.920 John Sinclair and also denounced the speech of Randall Jackson, which Ricardo as a bank 314 00:36:19.920 --> 00:36:24.020 stockholder had heard delivered in person. 315 00:36:24.020 --> 00:36:29.260 Malthus wrote two effective articles in the Edinburgh Review the following year, taking 316 00:36:29.260 --> 00:36:34.460 in the Thornton Horner Moderate Bullionist Position. 317 00:36:34.460 --> 00:36:39.980 Particularly effective defending the report was the Canning-Huskisson faction of Tories, 318 00:36:39.980 --> 00:36:43.520 centered in their journal The Quarterly Review. 319 00:36:43.520 --> 00:36:48.660 As firm Tories, the support of this faction shielded the Bullion Committee from charges 320 00:36:48.660 --> 00:36:51.380 of Whig partisanship. 321 00:36:51.380 --> 00:36:56.060 The most widely circulated and one of the most influential pamphlets supporting the 322 00:36:56.060 --> 00:37:01.460 The Report was written by its eminent co-author, William Huskisson. 323 00:37:01.460 --> 00:37:08.220 Huskisson's The Question Concerning the Depreciation of Our Currency, stated and examined, was 324 00:37:08.220 --> 00:37:16.020 published in late October 1810 and went into no less than eight editions in rapid succession, 325 00:37:16.020 --> 00:37:19.620 the ninth appearing in 1819. 326 00:37:19.620 --> 00:37:26.020 The quarterly review carried on a coordinated campaign on behalf of The Report, with contribution 327 00:37:26.020 --> 00:37:36.020 by High Tory George Ellis, 1753-1815, Huskisson and even the great George Canning himself. 328 00:37:36.020 --> 00:37:48.020 It is not without charm that William Huskisson contributed some passages to Ellis's laudatory review of Huskisson's own pamphlet in the quarterly review. 329 00:37:48.020 --> 00:37:56.520 All in all, about 90 pamphlets were published in a short period on both sides of the great bullion controversy. 330 00:37:56.520 --> 00:38:03.520 The climax came in May 1811, when Parliament finally got around to debating the report. 331 00:38:03.520 --> 00:38:13.520 After four days of debate, all Francis Horner's resolutions incorporating the essence of the report went down to a ringing defeat. 332 00:38:13.520 --> 00:38:17.920 The most important resolutions were his first and his last. 333 00:38:17.920 --> 00:38:26.720 The first outlined the responsibility of the bank's overissue for the price inflation and the depreciation of the pound. 334 00:38:26.720 --> 00:38:32.720 This resolution was defeated by a vote of 151 to 75. 335 00:38:32.720 --> 00:38:38.920 Horner's final resolution, providing for resumption of the gold standard in two years, 336 00:38:38.920 --> 00:38:54.920 Lost by a Far Wider Margin, 180-45 Nicholas van Sittert then rubbed it in for the government, getting parliament to pass resolutions defending the government's and the bank's view of the controversy. 337 00:38:54.920 --> 00:39:06.920 Most characteristic was van Sittert's third resolution, restating the classic nonsense in a declaration almost as fatuous as King Canute's command to the tides, 338 00:39:06.920 --> 00:39:30.920 or a State Legislature's redefinition of PIE, Parliament declared that the promissory notes of the said company, the Bank of England, have hitherto been and are at this time held in public estimation to be equivalent to the legal coin of the realm and generally accepted as such in all pecuniary transactions. 339 00:39:30.920 --> 00:39:41.920 Even though the inflation and the depreciation proceeded apace, the monetary controversy died out for the duration of the Napoleonic Wars. 340 00:39:41.920 --> 00:39:56.920 In despair, and perhaps to reveal the absurdity of van Sittert's case, the great Peter Lord King now decided to take direct personal action in protest against the depreciating paper pound. 341 00:39:56.920 --> 00:40:04.920 While the pound was not officially legal tender, it was treated as such by government and public alike. 342 00:40:04.920 --> 00:40:14.920 To dramatize the true situation, Lord King in 1811 proclaimed that henceforth he would only accept rent from his tenants 343 00:40:14.920 --> 00:40:19.920 either in gold coin or in banknotes at their market discount. 344 00:40:19.920 --> 00:40:24.920 In short, he would insist on the gold equivalent in pounds. 345 00:40:24.920 --> 00:40:46.920 King's heroic action forced the government to impose legal tender for payment of rent at the official par of 21 shillings to the gold guinea, and the following year, parliament completed the coup by extending legal tender coercion to all payments of every type. 346 00:40:46.920 --> 00:40:52.920 3. DEFLATION AND THE RETURN TO GOLD 347 00:40:52.920 --> 00:41:02.920 Needless to say, the self-same establishment politicians who had used war as their supreme excuse for continuing the restriction, 348 00:41:02.920 --> 00:41:10.920 failed to jump with alacrity to go back to the gold standard when the war finally ended in 1815. 349 00:41:10.920 --> 00:41:14.920 And yet conditions were certainly ripe. 350 00:41:14.920 --> 00:41:27.920 In a pattern that would set the tone for over a century, the inflationary credit boom of wartime was quickly succeeded by a post-war deflation of money, credit and prices. 351 00:41:27.920 --> 00:41:33.920 The wartime inflation was succeeded by a post-war deflationary recession. 352 00:41:33.920 --> 00:41:44.920 There is no evidence whatever that the Bank of England deliberately contracted the money supply to pave the way for a return to gold at the pre-war par. 353 00:41:44.920 --> 00:41:55.920 It was simply the beginning of the classic pattern of fractional reserve banking powered by a central bank, the creation of boom and bust. 354 00:41:55.920 --> 00:42:11.120 Total Bank of England credit fell from £44.9 million on 31 August 1815 to £34.4 million a year later, a drop of 24%. 355 00:42:11.120 --> 00:42:19.320 Bank deposits fell by about 15% in the same period, while bank notes fell by 11%. 356 00:42:19.320 --> 00:42:25.820 The bank contraction exerted a powerful leverage effect on the country banks. 357 00:42:25.820 --> 00:42:47.320 Many country banks failed from 1814 to 1816, and country bank note circulation fell from 22.7 million pounds in 1814 to 19 million pounds in 1815, and then to 15.1 million pounds in 1816. 358 00:42:47.320 --> 00:43:01.320 In short, country banknotes outstanding fell by 33.5% over the two-year period, and by 20.5% from 1815 to 1816. 359 00:43:01.320 --> 00:43:12.320 We may now arrive at a rough estimate of the total contraction of the money supply from August 1815 to August 1816. 360 00:43:12.320 --> 00:43:24.820 Total money supply, banknotes plus bank deposits plus country banknotes, amounted to approximately 60.7 million pounds in 1815. 361 00:43:24.820 --> 00:43:34.320 It fell to 50.4 million pounds the following year, a drop of 17% in one year. 362 00:43:34.320 --> 00:43:48.320 The monetary contraction, combined with general public expectations of a return to gold, drove the market gold premium over the official par down nearly to the par price. 363 00:43:48.320 --> 00:43:56.960 The monetary inflation had driven the market gold price up to 5.1 pounds at the end of 1813, 364 00:43:56.960 --> 00:44:06.400 which was 145 percent of the old official pre-restriction par of 3 pounds 17 shillings, 365 00:44:06.400 --> 00:44:15.680 10 and a half pence. After Napoleon's retirement to Elba, the gold price fell to 4 pounds 5 shillings, 366 00:44:15.680 --> 00:44:27.180 A premium of only 8%. Then, on Napoleon's return to France, the gold price of the pound shot up nearly to its 1813 peak. 367 00:44:27.180 --> 00:44:41.180 After Waterloo, once again, the gold price fell sharply and steadily, reaching £3.18.06 in October 1816, a premium of less than 1%. 368 00:44:41.180 --> 00:44:49.860 Similarly, the market price of silver fell from a peak premium of 38% in 1813 to a premium 369 00:44:49.860 --> 00:44:58.400 of only a little over 2% in the first post-war year of 1816, and the price of foreign exchange 370 00:44:58.400 --> 00:45:07.660 at Hamburg fell from a premium of 44% in 1813 down to par in 1816. 371 00:45:07.660 --> 00:45:23.660 This deflation accompanied the monetary contraction, British prices falling from a peak of 198 in 1814, 1790 being equal to 100, to 135 in 1816. 372 00:45:24.660 --> 00:45:32.660 Conditions were now perfect to return to gold, and immediate resumption could have been achieved with no further transition problems. 373 00:45:32.660 --> 00:45:51.660 But the British establishment dithered, its only constructive step in 1816 being Parliament's dropping of the formal bimetallic standard, which had only resulted in a de facto gold standard in the 18th century and the adoption of a formal gold standard. 374 00:45:51.660 --> 00:45:59.940 Silver, from then on, would only be subsidiary coin, but apart from stating that when Britain 375 00:45:59.940 --> 00:46:07.940 did go back to a specie standard, it would be going back to gold, nothing else was done. 376 00:46:07.940 --> 00:46:14.580 The problem was a pervasive desire in the establishment to resume cheap credit and inflation, 377 00:46:14.580 --> 00:46:20.860 as well as an even more widespread phobia about deflation that marred the analysis and 378 00:46:20.860 --> 00:46:27.540 and policy conclusions of even the most influential champions of a return to gold payments. 379 00:46:27.540 --> 00:46:34.300 The bulk of anti-bullionists displayed their hypocrisy and intellectual bankruptcy by reversing 380 00:46:34.300 --> 00:46:37.660 their supposed analytical stance. 381 00:46:37.660 --> 00:46:45.020 In short, those who stoutly denied all during the era of inflation that over-issue of banknotes 382 00:46:45.020 --> 00:46:51.980 had any impact on domestic prices or foreign exchange rates, now reversed their course 383 00:46:51.980 --> 00:46:58.900 and blamed the fall in prices, as well as the post-war depression, squarely on the contraction 384 00:46:58.900 --> 00:47:04.540 of the money supply and the eventual resumption of specie payments. 385 00:47:04.540 --> 00:47:09.820 What they wanted, therefore, was easy money and inflation, and they were willing to use 386 00:47:09.820 --> 00:47:21.780 What they seemed unwilling to realize is that any inflationary boom, especially that of 387 00:47:21.780 --> 00:47:29.300 a lengthy and major war, will collapse at war's end into depression and deflation. 388 00:47:29.300 --> 00:47:34.660 Much of the deflation was the result of the post-war depression and bankruptcies, for 389 00:47:34.660 --> 00:47:41.620 The initial post-war deflation occurred years before the actual return to gold, or even 390 00:47:41.620 --> 00:47:44.620 the passage of the Resumption Act. 391 00:47:44.620 --> 00:47:50.500 The post-war depression was the market's way of readjusting the economy to the enormous 392 00:47:50.500 --> 00:47:57.300 distortions of production and investment brought about by the skewed demands of wartime and 393 00:47:57.300 --> 00:48:00.220 the inflationary credit boom. 394 00:48:00.220 --> 00:48:06.420 In short, the post-war depression was the painful but necessary process of liquidating 395 00:48:06.420 --> 00:48:12.900 the distortions of the wartime inflation and of returning to a healthy, peacetime economy 396 00:48:12.900 --> 00:48:16.820 efficiently serving the consumers. 397 00:48:16.820 --> 00:48:21.860 Another cause of the deflation was industrial and economic progress. 398 00:48:21.860 --> 00:48:27.420 The end of the war liberated England to launch one of the greatest periods of economic growth 399 00:48:27.420 --> 00:48:29.200 in its history. 400 00:48:29.200 --> 00:48:35.220 The Industrial Revolution could at last develop freely and raise the standard of living of 401 00:48:35.220 --> 00:48:40.260 the mass of Englishmen, something it could not do when the industrial engine had been 402 00:48:40.260 --> 00:48:44.440 diverted to the unproductive waste of war. 403 00:48:44.440 --> 00:48:50.060 As a result of the great increase of production, prices kept falling in Britain throughout 404 00:48:50.060 --> 00:48:52.140 the 1820s. 405 00:48:52.140 --> 00:48:58.420 Long past the time when this welcome drop in the cost of living, this deflation could 406 00:48:58.420 --> 00:49:04.420 should plausibly be blamed on the return to gold in 1821. 407 00:49:04.420 --> 00:49:11.180 The anti-deflation hysteria and the desire to keep inflating delayed the return to gold 408 00:49:11.180 --> 00:49:15.120 for five years after 1816. 409 00:49:15.120 --> 00:49:21.420 When it became clear that there would be no immediate resumption, the pound began to depreciate 410 00:49:21.420 --> 00:49:31.220 And again, the price of silver bullion rising from 2% above par in 1816 to 12% premium on 411 00:49:31.220 --> 00:49:32.820 1818. 412 00:49:32.820 --> 00:49:41.540 Similarly, the foreign exchange rate at Hamburg rose from par to 5% above, and domestic prices 413 00:49:41.540 --> 00:49:48.460 rose from 135 in 1816 to 150 two years later. 414 00:49:48.460 --> 00:49:54.200 The weakening of the pound by disappointed expectations of immediate resumption was also 415 00:49:54.200 --> 00:50:01.060 greatly compounded by an expansion of bank advances and note issues. 416 00:50:01.060 --> 00:50:07.700 When the restriction came up for one of its periodic renewals in the spring of 1816, Chancellor 417 00:50:07.700 --> 00:50:13.740 of the Exchequer, Van Sittert, pleaded for two more years of renewal so that business 418 00:50:13.740 --> 00:50:17.100 could acquire more needed cheap credit. 419 00:50:17.100 --> 00:50:25.100 Hans Sittert was easily able to defeat Francis Horner's resolution for resumption of specie payment in two years. 420 00:50:25.100 --> 00:50:33.100 Agriculturists, as usual, had over-expanded and went heavily into debt during the wartime inflation, 421 00:50:33.100 --> 00:50:42.100 and then complained heavily when the bubble burst and turned to the government to inflate or expand spending on their behalf. 422 00:50:42.100 --> 00:50:48.780 The quarterly review, reflecting Tory devotion to the interests of aristocratic large landlords, 423 00:50:48.780 --> 00:50:55.940 shifted gears from favoring the bullion report to bitterly denouncing deflation. 424 00:50:55.940 --> 00:51:01.460 The most extreme of the inflationists now emerged in the form of two banker brothers 425 00:51:01.460 --> 00:51:15.260 from Birmingham, Thomas 1783-1856 and Mathias Atwood 1779-1851, who also served as the spokesman 426 00:51:15.260 --> 00:51:23.020 for the iron and brass industry of the city. Birmingham, as the center of armaments manufacture, 427 00:51:23.020 --> 00:51:29.540 had been a major beneficiary of the war boom. Thomas Robert Malthus, as we have seen, for 428 00:51:29.540 --> 00:51:37.120 for a few years urged the government to increase deficits to cure the alleged ills of under-consumption, 429 00:51:37.120 --> 00:51:42.940 but abandoned this line of thought as soon as the post-war agricultural and economic depression 430 00:51:42.940 --> 00:51:44.760 was over. 431 00:51:44.760 --> 00:51:50.440 But the prolific Atwoods were able to make inflation and permanent, inconvertible fiat 432 00:51:50.440 --> 00:51:53.800 paper money a lifelong crusade. 433 00:51:53.800 --> 00:52:21.800 Nothing, for example, could be more starkly opposed to Say's crucial law of markets than the unabashed assertion of Thomas Atwood, in an 1817 open letter to van Sittert, that it is the chief purpose of this letter to show that the issue of money will create markets, and that it is upon the abundance or scarcity of money that the extent of all markets principally depends. 434 00:52:21.800 --> 00:52:42.800 Along with fiat money and monetary inflation, the Atwoods and their counterparts in the northern industrial city of Liverpool were able to persuade the government to embark on a large-scale program of deficits, relief and public works to try to generate another inflationary boom. 435 00:52:42.800 --> 00:53:02.800 James Mill warned Ricardo in the autumn of 1816 that some villainous schemes of finance were afoot, and sure enough the government proposed a deficit bond issue to finance public works, and also loaned out three quarters of a million pounds during 1817. 436 00:53:02.800 --> 00:53:26.800 The temporary resurgence of inflation and prosperity in 1818 was the result, according to the fiery, erratic, hard-money radical journalist William Cobbett, of the prodding by Mathias Atwood upon van Sittert, who caused bales of paper money to be poured out via Bank of England loans to the government. 437 00:53:26.800 --> 00:53:43.800 Indeed, it was undoubtedly the weakening of the pound in 1817 and 1818 that tipped the scales and led to parliaments passing the act of resuming payments in gold in May 1819. 438 00:53:43.800 --> 00:53:55.800 Resumption in gold coin was supposed to begin four years hence, but actually gold coin payments were launched on the banner day of 8 May 1821. 439 00:53:55.800 --> 00:54:04.800 Even though the resultant gold coin standard served as the cornerstone of Britain's economic growth and prosperity for nearly a century, 440 00:54:04.800 --> 00:54:13.800 the fierce opposition, confusion and vacillating of the government made arriving at the proper results seem almost a miracle. 441 00:54:13.800 --> 00:54:20.800 The bank opposed resumption down to the very passage of the law in 1819, 442 00:54:20.800 --> 00:54:28.800 and it was the government's temporarily cooling relations with the bank that allowed room for the resumption law. 443 00:54:28.800 --> 00:54:37.800 Yet, even though a determined effort was launched by men such as Alexander Bering, 1774 to 1848, 444 00:54:37.800 --> 00:54:45.800 the Atwoods and the Birmingham manufacturing interests and the landed aristocrats to overturn resumption, 445 00:54:45.800 --> 00:54:52.360 The gold standard held and was even resumed earlier than scheduled in 1821. 446 00:54:52.360 --> 00:55:00.240 Thus the Earl of Carnarvon in mid-1821, denouncing the Resumption Act for lowering agricultural 447 00:55:00.240 --> 00:55:07.000 prices and calling for monetary expansion and greater government expenditures, openly 448 00:55:07.000 --> 00:55:15.240 raised the standard of the landed aristocracy as against the cosmopolitan moneymen and financiers. 449 00:55:15.240 --> 00:55:22.040 He called upon the House to consider the consequences of destroying, by its means, the aristocracy 450 00:55:22.040 --> 00:55:28.540 of the country, the gentleman and the yeomanry of England, on whose existence our institutions 451 00:55:28.540 --> 00:55:30.900 alone could rest. 452 00:55:30.900 --> 00:55:35.240 The moneyed interest had been formed by the calls of our finances. 453 00:55:35.240 --> 00:55:37.040 They could be removed. 454 00:55:37.040 --> 00:55:41.040 They were inhabitants of this or of any other country. 455 00:55:41.040 --> 00:55:47.240 But the stability of our institutions and the safety of the throne itself depended on our 456 00:55:47.240 --> 00:55:49.980 agricultural population. 457 00:55:49.980 --> 00:55:53.360 And yet, the gold coin standard held. 458 00:55:53.360 --> 00:55:59.680 It held even though two of the most influential champions of resumption were weak reeds when 459 00:55:59.680 --> 00:56:04.620 it came to resisting the anti-deflation hysteria. 460 00:56:04.620 --> 00:56:13.060 At the end of the war, Ricardo, in his Proposals for an Economical and Secure Currency, 1816, 461 00:56:13.060 --> 00:56:19.620 reverted to his 1811 gold bullion proposal, in which resumption would take place not in 462 00:56:19.620 --> 00:56:26.900 coin, but in large ingots or gold bars, thereby limiting the gold standard to a few wealthy 463 00:56:26.900 --> 00:56:28.980 traders. 464 00:56:28.980 --> 00:56:34.380 Gold would not then be the true standard currency of the realm, and would be but a flimsy 465 00:56:34.380 --> 00:56:48.580 After the publication of his Principles of Political Economy in 1817, David Ricardo 466 00:56:48.580 --> 00:56:54.620 was the most celebrated economist in England, and his views on currency, as well as other 467 00:56:54.620 --> 00:56:57.680 economic problems, carried great weight. 468 00:56:57.680 --> 00:57:04.180 At the urging of his mentor, James Mill, Ricardo then entered Parliament in 1819 to 469 00:57:04.180 --> 00:57:09.580 to battle for his economic views until his death in 1823. 470 00:57:09.580 --> 00:57:15.740 He particularly lent his great prestige to urging resumption of gold payments, and somehow 471 00:57:15.740 --> 00:57:22.380 his bullion plan lost out rapidly to the more consistent and more thorough going gold coin 472 00:57:22.380 --> 00:57:24.540 standard. 473 00:57:24.540 --> 00:57:30.300 The most important single politician responsible for the return to gold was the remarkable 474 00:57:30.300 --> 00:57:39.240 The story statesman Robert Peel the Younger, 1788-1859, who gave his name, Peel's Act, 475 00:57:39.240 --> 00:57:45.060 to the Resumption Law. Peel was later, as Prime Minister, to be responsible during the 476 00:57:45.060 --> 00:57:51.760 mid-1840s for the repeal of the notorious Corn Laws, as well as the attempt to establish 477 00:57:51.760 --> 00:57:59.280 the currency principle into law in Peel's Act of 1844. Peel's accomplishments were 478 00:57:59.280 --> 00:58:04.720 were particularly remarkable for being bred to the political purple by his distinguished 479 00:58:04.720 --> 00:58:07.120 High Tory father. 480 00:58:07.120 --> 00:58:13.800 Peale was the eldest son of Sir Robert Peale the Elder, a leading Lancashire cotton manufacturer 481 00:58:13.800 --> 00:58:20.140 whose own father had established the first Calico cotton factory in Lancashire. 482 00:58:20.140 --> 00:58:26.340 Sir Robert was a dyed-in-the-wool Tory statist, a fervent supporter of William Pitt, who had 483 00:58:26.340 --> 00:58:34.060 had written a pamphlet in 1780 praising the national debt productive of national prosperity. 484 00:58:34.060 --> 00:58:39.420 As a member of parliament, the Elder Peel had ardently backed the war against France, 485 00:58:39.420 --> 00:58:46.860 had put through the First Factory Act and had opposed the Bullion Report in 1811. 486 00:58:46.860 --> 00:58:53.700 When young Robert was born, Sir Robert dedicated his firstborn son to the world of politics. 487 00:58:53.700 --> 00:58:59.020 The brilliant youth went to Harrow, where he was a friend and classmate of Lord Byron, 488 00:58:59.020 --> 00:59:04.060 and entered Christchurch College in Oxford in 1805. 489 00:59:04.060 --> 00:59:10.180 In 1808, Peel graduated with high honors, and his doting father promptly purchased him 490 00:59:10.180 --> 00:59:13.140 a seat in parliament the following year. 491 00:59:13.140 --> 00:59:19.300 The precocious 21-year-old member of parliament soon became undersecretary for war and the 492 00:59:19.300 --> 00:59:25.980 Colonies, whose ministry conducted the war against France, and in 1812 he became for 493 00:59:25.980 --> 00:59:30.140 six years the Chief Secretary for Ireland. 494 00:59:30.140 --> 00:59:36.640 There he followed his father's high Tory principles by fiercely repressing the Irish and taking 495 00:59:36.640 --> 00:59:41.860 the lead in opposing the emancipation of Catholics in Great Britain. 496 00:59:41.860 --> 00:59:48.920 In 1811, young Peel joined his father in bitter opposition to the Bullion Report. 497 00:59:48.920 --> 00:59:54.600 In 1819, when the House of Commons named a committee to study the resumption of specie 498 00:59:54.600 --> 01:00:01.680 payments, young Robert Peel was chosen chairman over far more experienced members, such as 499 01:00:01.680 --> 01:00:07.720 Huckison, Canning, and the ardent bullionist and member of the bullion committee, the Whig, 500 01:00:07.720 --> 01:00:09.880 George Tierney. 501 01:00:09.880 --> 01:00:16.200 Yet Robert Peel orchestrated the report favorable to resumption, and it was Peel who shepherded 502 01:00:16.200 --> 01:00:19.440 and the Resumption Law through Parliament. 503 01:00:19.440 --> 01:00:25.840 Peel thereby displayed the beginning of his memorable lifelong series of shifts away from 504 01:00:25.840 --> 01:00:34.200 high Tory statism and towards classical liberalism, towards, in short, hard money, free trade 505 01:00:34.200 --> 01:00:38.480 and emancipation of the Roman Catholics of Britain. 506 01:00:38.480 --> 01:00:44.400 George Canning was in awe at Peel's achievement in attaining the gold coin standard, calling 507 01:00:44.400 --> 01:00:49.120 In effecting this feat the greatest wonder he had witnessed in the political world, it 508 01:00:49.120 --> 01:00:54.960 was particularly piquant that in effecting this notable change of heart, the younger 509 01:00:54.960 --> 01:01:01.320 Peel had to break with his father, who not only opposed resumption, but also signed the 510 01:01:01.320 --> 01:01:08.080 petition of several hundred merchants, bankers, traders and others of the City of London warning 511 01:01:08.080 --> 01:01:14.240 of great distress should the committee's recommendation ever become law. 512 01:01:14.240 --> 01:01:20.540 A crucial question, then, is how Robert Peale came to change his mind. 513 01:01:20.540 --> 01:01:25.620 Professor Rashid has performed the service of unearthing as the likely instrument of 514 01:01:25.620 --> 01:01:32.220 Peale's conversion, his former tutor at Oriel College, Oxford, the Rev. Edward Copleston 515 01:01:32.220 --> 01:01:37.280 1776-1849. 516 01:01:37.280 --> 01:01:42.480 Copleston was the son of a rector in Devonshire and was descended from an ancient landed Devon 517 01:01:42.480 --> 01:01:49.960 and Family. Graduating from Corpus Christi College, Oxford in 1795, Copleston became 518 01:01:49.960 --> 01:01:57.360 a fellow at Oriel College, getting his M.A. from there in 1797 and becoming a tutor at 519 01:01:57.360 --> 01:02:06.440 Oriel and professor of poetry at Oxford. Copleston later became dean at Oriel and by 1814 had 520 01:02:06.440 --> 01:02:12.800 had risen to Provost of Oriel College. He was highly influential at Oxford, and one 521 01:02:12.800 --> 01:02:18.560 of the main persons responsible for the raising of academic standards and the subsequent rise 522 01:02:18.560 --> 01:02:25.320 of Oxford to its once high estate. Although a staunch Tory and an influential clerical 523 01:02:25.320 --> 01:02:31.320 counselor to the Tory leadership, Copleston was a moderate liberal in the Anglican Church 524 01:02:31.320 --> 01:02:35.640 and an Advocate of Catholic Emancipation. 525 01:02:35.640 --> 01:02:43.740 As early as 1811, Copleston had become a determined opponent of inflation and depreciation, especially 526 01:02:43.740 --> 01:02:50.080 criticizing its destructive effect on creditors and holders of fixed incomes. 527 01:02:50.080 --> 01:02:57.160 In 1819, he decided to intervene in the new bullionist struggle by publishing two pamphlets 528 01:02:57.160 --> 01:03:00.020 directed to his former pupil. 529 01:03:00.020 --> 01:03:06.020 The first, Letter to the Right Honorable Robert Peale on the Pernicious Effects of a Variable 530 01:03:06.020 --> 01:03:13.820 Standard of Value, was published on 19 January 1819, and it was quickly recommended on the 531 01:03:13.820 --> 01:03:20.060 floor of the House of Commons by the fiery Whig and proponent of immediate resumption, 532 01:03:20.060 --> 01:03:21.820 George Tierney. 533 01:03:21.820 --> 01:03:26.400 The pamphlet was also praised in an editorial in the Times. 534 01:03:26.400 --> 01:03:32.160 The first edition of the letter was sold out immediately, and within a month, three editions 535 01:03:32.160 --> 01:03:34.040 had been printed. 536 01:03:34.040 --> 01:03:40.120 In March, Copleston published a second letter, elaborating on the arguments of the first, 537 01:03:40.120 --> 01:03:46.960 particularly on the ill effects that inflation and a depreciating pound had on the poor. 538 01:03:46.960 --> 01:03:51.680 The large printing of the second letter was quickly sold out, and a second edition was 539 01:03:51.680 --> 01:03:54.600 issued in May. 540 01:03:54.600 --> 01:03:59.780 Points of Copleston's influence on Peel comes from the latter's correspondence with his 541 01:03:59.780 --> 01:04:05.280 favorite tutor at Oxford, his close friend, the Rev. Charles Lloyd. 542 01:04:05.280 --> 01:04:12.380 Lloyd, who was indeed a rival Anglo-Catholic force to Copleston at Oxford, wrote to Peel 543 01:04:12.380 --> 01:04:19.380 recommending Copleston's letter at the same time that Peel was recommending it to him. 544 01:04:19.380 --> 01:04:24.660 Peel notes that the pamphlet has made a great impression in Parliament, including among 545 01:04:24.660 --> 01:04:28.060 its admirers Canning and Huckason. 546 01:04:28.060 --> 01:04:34.060 In fact, it seems likely from Peel's remarks that Coppleston's clear-cut restatement of 547 01:04:34.060 --> 01:04:40.660 bullionist principle was the first pamphlet he had ever read on the subject. 548 01:04:40.660 --> 01:04:46.500 Mathias Atwood, indeed, went so far as to claim that Peel and Huckason were followers 549 01:04:46.500 --> 01:04:48.940 of Coppleston's ideas. 550 01:04:48.940 --> 01:04:55.220 If Copleston was crucially influential, then his violent attack in the pamphlet on what 551 01:04:55.220 --> 01:05:01.980 Peale referred to as the imbecility of Nicholas van Sittert might have played a large role 552 01:05:01.980 --> 01:05:08.540 in reducing van Sittert's influence and getting government policy on resumption changed. 553 01:05:08.540 --> 01:05:15.500 Yet, in the post-resumption debate, even Copleston floundered, claiming in the quarterly review 554 01:05:15.500 --> 01:05:24.500 He argued in 1821 that while he had upheld the principle of specie payments, he had been opposed to immediate resumption. 555 01:05:25.500 --> 01:05:36.500 Complaining about the agricultural distress, he blamed the immediate resumption on the influence of Ricardo, ignoring the latter's own phobia about deflation. 556 01:05:36.500 --> 01:05:55.500 Thus the two most influential writers pushing parliament into resumption, Ricardo and Edward Coppelston, each was uncertain about the gold coin standard in the face of deflation. Robert Peel's achievement appears, then, all the more miraculous. 557 01:05:55.500 --> 01:06:13.500 Of particular interest is Copleston's brilliance and possible originality in his challenge to Ricardo by reviving, perhaps unwittingly, the complete bullionist or pre-Austrian monetary tradition of Catillon and Lord King. 558 01:06:13.500 --> 01:06:23.500 Copleston in the first place attacked Ricardo's mechanistic assertion that exchange rates measure the degree of depreciation. 559 01:06:23.500 --> 01:06:36.500 This doctrine resting on the equally mechanistic view that a variation in price caused by an altered value of money is common at once to all commodities. 560 01:06:36.500 --> 01:06:51.500 Copleston countered that it was precisely because prices do not adjust smoothly, instantly and uniformly to inflation that the inflation process is so painful and destructive. 561 01:06:51.500 --> 01:07:16.500 The fact undoubtedly is that the altered value of money does not affect all prices at the same time, but that wide intervals occur, during which one class is compelled to buy deer while they sell cheap, and others have no prospect whatever of indemnity or of regaining the relative position they once occupied. 562 01:07:16.500 --> 01:07:40.500 In short, Copleston pointed out the profound truth that in a transition period to a new monetary equilibrium, there are always gains by those whose selling prices rise faster than their buying prices, and losses by those whose costs rise faster than selling prices, and who are late in receiving the new money. 563 01:07:40.500 --> 01:07:48.500 But even further, Copleston points out that some of these changes in relative income and wealth will be permanent. 564 01:07:48.500 --> 01:07:59.500 In short, changes in the money supply are never neutral to the economy, and their effects are never confined to the level of prices. 565 01:07:59.500 --> 01:08:08.500 Taking issue with David Hume's famous assertion that an increase of the quantity of money in a country generates prosperity, 566 01:08:08.500 --> 01:08:18.500 Copleston pointed to the impoverishment of the Spanish and English peasantry from the monetary and price inflation of the 16th century. 567 01:08:18.500 --> 01:08:30.500 He noted shrewdly in a lesson that could well be heeded today that while pure theory inculcates the neutral and necessary tendency towards an equitable adjustment, 568 01:08:30.500 --> 01:08:39.500 It also leaves the intermediate difficulties and delays out of the question as frictions in a mechanical problem. 569 01:08:39.500 --> 01:08:49.500 On the other hand, Copleston was perceptive enough to point out that the path toward equilibrium is faster in monetary than in real matters. 570 01:08:49.500 --> 01:08:55.500 In monetary affairs, he noted, the level is found almost immediately. 571 01:08:55.500 --> 01:09:07.500 Other commodities require some time to produce them, and the fortunate holder of large quantities may make great profits before an adequate competition can grow up. 572 01:09:07.500 --> 01:09:14.500 But in these, money, the time and labor required for the production count for nothing. 573 01:09:14.500 --> 01:09:23.500 The commodity is always afloat, waiting only the impulse of profit to determine its direction to the best market.