Chapter II: Part 2

There does not appear to me to be any substantial difference between bullion and any other commodity as far as regards the regulation of its value and the laws which determine its exportation or importation. It is true that bullion, besides being a commodity useful in the arts, has been adopted universally as a measure of value and a medium of exchange; but it has not on that account been taken out of the list of commodities. A new use has been found for a particular article; consequently there has been an increased demand for it and an augmented supply. This new use has made every man a dealer in bullion; he buys it to sell it again, and the general competition of all these dealers will as surely, and as strictly, regulate its value in every country, as the competition of the same or other dealers will regulate the value of all other commodities. I have your sanction for calling every purchaser of commodities a dealer in bullion; and, though in the language of commercial men the sellers of money are in all cases called purchasers, it is not on that account less true that they are sellers of one commodity and purchasers of another. The nature of corn was not changed by the discovery that a new use might be made of it by fermentation and distillation; and, if we should hereafter discover that it might be used for a hundred other purposes, contributing to the comforts and enjoyments of mankind, the demand for it would increase, and its price would in the first instance be considerably augmented; but this would be the only change it would undergo; it would continue to be imported and exported by the same rules as every other commodity. I have no doubt that on this point we should not differ; it remains therefore for you to show why the new uses, to which gold has been applied in consequence of its being adopted as the money of the world, should exempt it from the general law of competition, and why it should not certainly and invariably (invariably only as that term is applied to other commodities) seek the most advantageous market.

It is probable that the word 'redundancy' has not been happily chosen by me to express the impression made on my mind of the cause of an unfavourable balance of trade; but on looking over the article in the Review[40] I find that you use it precisely in the sense in which I wish to convey my meaning, for you admit that a relatively redundant currency may be, and frequently is, a cause of an unfavourable balance of trade; but you contend that it is not the only cause. Now I, so understanding the word, contend that it is the invariable cause. This relative redundancy may be produced as well by diminution of goods as by an actual increase of money (or which is the same thing by an increased economy in the use of it) in one country; or by an increased quantity of goods or by a diminished amount of money in another. In either of these cases a redundancy of money is produced as effectually as if the mines had become more productive. I do not deny that temporary fluctuations do occur in the value of the precious metals; on the contrary I maintain that those fluctuations never cease; but I attribute them all to one cause, namely a redundancy of the currency produced in one of the ways above mentioned, and not to the demand for particular commodities. These demands are in my opinion regulated by the relative state of the currency; they are not causes but effects. You appear to me not sufficiently to consider the circumstances [which] induce one country to contract a debt to another. [In] all the cases you bring forward you always suppose the [deb]t already contracted, forgetting that I uniformly contend that it is the relative state of the currency which is the motive to the contract itself. The corn, I say, will not be bought unless money be relatively redundant; you answer me by supposing it already bought and the question to be only concerning the payment. A merchant will not contract a debt for corn to a foreign country unless he is fully convinced that he shall obtain for that corn more money than he contracts to pay for it, and, if the commerce of the two countries were limited to these transactions, it would as satisfactorily prove to me that money was redundant in one country as that corn was redundant in the other. It would prove too that nothing but money was redundant. If indeed sugar were exported by some other merchant, the debt for corn would be paid without the exportation of money, and I should say that sugar was the redundant commodity; and the exportation of sugar, the more redundant commodity, by diminishing the aggregate amount of commodities, would raise the value of money, so that in a short time money would, if corn continued to be imported and sugar exported, no longer be redundant even as compared with corn. Your observation is just, concerning the extra expenses attending the exportation of bulky commodities; but in all these discussions we must suppose these expenses to make part of the price of the commodity; our comparison is made on the prices at which the importer could afford to sell them, and those prices necessarily include expenses of every sort. I do not think that the knowledge of the computed exchange of Jamaica would throw any light on the subject in dispute[41]. I will, however, endeavour to learn every particular concerning it, and hope to be able on Saturday next to pay you a visit in Hertfordshire, when we will further discuss these seeming difficulties.

I am, dear Sir, with great respect,
Your obedient Servant,
DAVID RICARDO.

THROGMORTON STREET, _18th June, 1811_.

VII.[42]

DEAR SIR,

I have been so much engaged since I had the pleasure of receiving your letter that I have not had an opportunity of answering it till this evening.

The information which you are desirous of obtaining respecting the premium on bills in Jamaica from the year 1808 to the present period, I will endeavour to procure, but, as these transactions all take place in Jamaica, and as the merchants here are frequently not acquainted with the prices at which the bills remitted to them are negociated, I am not sure that I shall be successful.

I very much regret that there is so little probability of our finally agreeing on the subject which has lately engaged our attention. The definition which you give of the word 'redundant,' as applied to the currency, is not satisfactory to me. Though it should be allowed that the rise in the price of one commodity, in the case of a scarcity of corn, should be accompanied with a fall in the prices of all others, why should a redundancy of currency be impossible under such circumstances? The currency must, I apprehend, be considered as a whole, and as such must be compared with the whole of the commodities which it circulates. If then it be in a greater proportion to commodities after than before the scarce harvest, whilst no such alteration has taken place in the proportions between money and commodities abroad, it appears to me that no expression can more correctly describe such a state of things than a 'relative redundancy of currency.' Under these circumstances not only money but every other commodity would become comparatively cheap as compared with corn, and would therefore be exported in return for the corn which would be in demand in this country. By relative redundance then I mean, relative cheapness, and the exportation of the commodity I deem, in all ordinary cases, the proof of such cheapness. Indeed, from one who allows that the amount of money employed in any country is regulated by its value, and might therefore be comparatively redundant though it consisted only of a million, or deficient though it amounted to a hundred millions, I should not have expected any difference of opinion on the comparative cheapness of money being the only satisfactory proof of its redundance. If however I thought that the difference between us was as to the correct use of a word, I should immediately yield the point in dispute, but I am persuaded that we do not agree in the principle. You are of opinion that a bad harvest will raise the price of corn, but will lower in some degree the prices of other commodities. Whether it would or would not do so is not material; but, if your opinion is correct, then I say there would be no exportation of money, because money would not be the cheapest exportable commodity. If, before the deficient harvest, money was at the same value in any two countries, that is to say all their exportable commodities without exception were at the same prices in both, then, according to your view of the question, after the scarcity the prices of all commodities would fall in the country where such scarcity occurred. Whilst then the prices were unequal in the two countries, commodities only would be exported in exchange for corn, and there would be no question between us, because we differ as to the cause of the exportation of money. You have indeed said that there may be a glut of commodities in the foreign market. What! a glut of commodities with a dearer price! impossible,--these two circumstances are incompatible. If the price of any commodity had been L20 in both countries and in consequence of the bad harvest it had been lowered to L15 in one of them, there could not be a glut of that commodity in the other country till it had there also fallen to L15. Not only must the price of one commodity fall in the foreign market, but the prices of all (because you suppose them all to have fallen in England) before money could be exported in exchange for corn, and then I would allow that money would be exported, but even then it would be so only because it was more cheap on the whole, as compared with commodities in the exporting country, and this I contend is the proof of its relative redundance. You maintain that money is rendered cheap by a bad harvest as compared with corn only, but with all other commodities it is dearer than before,--and then, what appears to me very inconsistent, you insist that this commodity thus rendered scarce and dear will be exported, though, before it had increased in value, it had no tendency to leave us, whilst too there are commodities which have undergone an opposite change, which from being dearer have become cheaper, and which will nevertheless be obstinately retained by us. This is a mode of reasoning which I cannot reconcile.

With respect to the other point, namely, that the exchange accurately measures the depreciation of the currency[43], I cannot but humbly retain that opinion notwithstanding the high authorities against me. I do not mean to contend that a convulsed state of the exchange, such as would be caused by a subsidy granted to a foreign power, would accurately measure the value of the currency, because a demand for bills arising from such a cause would not be in consequence of the natural commerce of the country. Such a demand would therefore have the effect of forcing the exports of commodities by means of the bounty which the exchange would afford. After the subsidy was paid the exchange would again accurately express the value of the currency. The same effects would follow, as in the case of a subsidy, from the foreign expenditure of Government. These have a natural tendency to create an unfavourable exchange, yet if the demand for bills is regular it is surprising how this bounty on exportation will be reduced by the competition amongst the exporters of commodities. I am of opinion that in the ordinary course of affairs, if, from any of the circumstances so often mentioned, there should be a slight alteration in the value of the currencies of any two countries, it will speedily be communicated to the exchange; and, if such a state of things should permanently continue, the exchange has no tendency to correct itself. The fact however appears to be that there is no degree of permanence in the proportions between the currencies and the commodities of nations,--they are subject to constant fluctuations always approaching an absolute level but never really finding it. I hope I have not wearied you with the defence which I have endeavoured to make for the opinions which I have imbibed. I assure you that I am not obstinately attached to any system, but am ready to relinquish any views I may have taken as soon as I am satisfied that they are incorrect. I shall not fail attentively to consider the chapters in Sir J. Steuart's work which you have mentioned[44]. I hope before the summer is over to pay you a visit at Hertford.

I am, dear Sir,
Yours very sincerely,
DAVID RICARDO.

NEW GROVE, MILE END, _17 July, 1811_.

VIII.

DEAR SIR,

I hoped long ere this to have had the pleasure of seeing you in London. I am anxious for an opportunity of introducing Mrs. Malthus and Mrs. Ricardo to each other, and I shall certainly claim the half promise which Mrs. Malthus made me on that subject when I experienced your hospitality at Hertford. We have few engagements, and have a bed always at your disposal, so that I shall hope on your very first visit to London you will favour me by occupying it.

A friend of mine has been writing on the subject of bullion. I take the liberty of sending you the MS[45]. If you could look over it and give me your opinion of it you will much oblige me. He would be induced to prepare it for the press if he thought that the mode in which the argument is put is more likely to silence our adversaries and convince those who are not our adversaries than the mode in which it has been put by any other person. Should you be so engaged that you cannot devote your attention to it at the present time, use no ceremony with me, but return the MS. by the coach, directed to me at No. 16 Throgmorton Street. With best respects to Mrs. Malthus,

I am, dear Sir,
Yours very truly,
DAVID RICARDO.

STOCK EXCHANGE, _17th Oct., 1811_.

IX.

THROGMORTON STREET, _22nd Oct., 1811_.

DEAR SIR,

I am exceedingly obliged to you for the trouble which you have taken in looking over the papers which I sent you, and for the remarks which you have made upon them. Notwithstanding your flattering encouragement I think I shall not have sufficient confidence again to address the public;--the object which I had in view is completely attained,--the public attention has been awakened, and the discussion is now in the most able hands. I regret, however, that you cannot bring yourself to subscribe to my doctrine respecting the exchange being influenced by no other causes but by the relation which the amount of currency bears to the uses for which it is required in the different nations of the earth. This may proceed from your interpreting my proposition somewhat too rigidly. I wish to prove that if nations truly understood their own interest they would never export money from one country to another but on account of comparative redundancy. I assume indeed that nations in their commercial transactions are so alive to their advantage and profit, particularly in the present improved state of the division of employments and abundance of capital, that in point of fact money never does move but when it is advantageous both to the country which sends and the country that receives that it should do so. The first point to be considered is, what is the interest of countries in the case supposed? The second what is their practice? Now it is obvious that I need not be greatly solicitous about this latter point; it is sufficient for my purpose if I can clearly demonstrate that the interest of the public is as I have stated it[46]. It would be no answer to me to say that men were ignorant of the best and cheapest mode of conducting their business and paying their debts, because that is a question of fact not of science, and might be urged against almost every proposition in Political Economy. It rests with you therefore to prove that a case can exist where it may become the _interest_ of a nation to pay a debt by the transmission of money rather than in any other mode, when money is not the cheapest exportable commodity,--when money (taking into account all expenses which may attend the exportation of different commodities as well as money) will not purchase more goods abroad than it will at home. You appear to me to have repeatedly admitted that it is the relative prices of commodities which regulates their exportation. Is it not then as certain that money will go to that country where the major part of goods are cheap, as that goods will go to any other country where the major part are dear? I say the major part, because if the cheapness of one half of the exportable commodities be balanced by the dearness of the other half, in both countries, it is obvious that the commerce of such countries will be confined to the exchange of goods only. When you say that money will go abroad to pay a debt or a subsidy, or to buy corn, although it be not superabundant, but at the same time admit that [it] will speedily return and be exchanged for goods, you ap[pear to me] to concede all for which I contend, namely, that [it will] be the _interest_ of both countries, when money is not superabundant in the one owing the debt, that the expense of exporting the money should be spared, because it will be followed by another useless expense,--sending it back again.

If in any country there exists a dearness of importable commodities and no corresponding cheapness of exportable commodities, money in such country is above its natural level and must infallibly be exported in payment of the dear commodities,--but what does this state of things indicate but an excess of currency, and it may surely be correctly said that money is exported to restore the level not to destroy it. I ought to apologise for again troubling you with my opinions, but you have drawn me into it. I shall be happy to renew our conversation on these disputed points as soon as you can make it convenient to visit us in London, and I trust it will not be long before Mrs. Malthus and you will favour us with your company. On some future day I shall have great pleasure in again visiting you at Hertford.

I am, dear Sir,
Yours very truly,
DAVID RICARDO.

X.

NEW GROVE, MILE END, _22nd Dec., 1811_.

MY DEAR SIR,

I write to you, in the first place, to remind you that Mrs. Ricardo and I fully depend on having the pleasure of Mrs. Malthus' and your company at Mile-end in the next month, when we hope that our endeavours to make your visit comfortable will induce you to make a long stay with us. In the second place, I am desirous of correcting some of the errors in the papers which I left with you and which I have been enabled to discover, as I have many others, by the ingenious arguments with which you have opposed my conclusions. In my endeavours to trace the effects of a subsidy[47] in forcing the exportation of commodities, I stated, if I recollect rightly, that it would occasion, first, a demand for bills; secondly, an exportation of all those commodities the prices of which already differed so much, in the two countries, as to require only the trifling stimulus which the first fall in the exchange would afford; thirdly, a real alteration in the relative state of prices, viz. a rise in the exporting and a fall in the importing country,--in a degree too to counterbalance the advantage from the unfavourable exchange; and lastly, a further fall of the exchange and a consequent exportation of an additional quantity of goods and then of money till the subsidy were paid. It appears, then, that if the subsidy were small it would be wholly paid by the exportation of commodities, as the fall in the exchange would be sufficient to encourage _their_ exportation, but not sufficient to encourage the exportation of money. If the exportation of money were in the same proportion as the exportation of commodities, that is to say, supposing the commodities of a country to be equal to 100, and its money equal to two, then if not less than one fiftieth of the exports in payment of the subsidy consisted of money, prices would after such payment be the same as before in both countries, and, although the exchange must have fallen to that limit at which the exportation of money became profitable, it would immediately have a tendency to recover, and would shortly rise to par; but it is precisely because less than this proportion of money will be exported that the exchange will continue permanently unfavourable and will have no tendency to rise, more than it will have to fall.

I believe you admit, that in the case of an augmentation of 2 per cent. to our currency, although it were wholly metallic, the prices of commodities would rise in this country 2 per cent. above their former level, and that such rise being confined to this country alone it would check exportation and encourage importation; the consequence of which would be a demand for bills and a fall in the exchange. This rise of prices and fall of the exchange, proceeding from what you do not object to call a redundant currency, would not be temporary but permanent, unless it were corrected by a reduction of the amount of the currency here, or by some change in the relative amount of the currencies of other countries. That these would be the effects of a direct augmentation of currency, I believe, you, with very few qualifications, admit. Now, as a bad harvest or the vote of a subsidy tend [_sic_] to produce the very same effects, namely, a relative state of high prices at home, accompanied by an unfavourable exchange, they admit only of the same cure,--and, as in the case of an augmentation of currency the exchange would have no tendency to rise, neither would it in the case of a subsidy, the unfavourable exchange being in both instances produced by a redundant currency, or in more popular language by a relative state of prices which renders the exportation of money most profitable[48]. I have uniformly maintained that the money of the world is distributed amongst the different countries according to their commerce and payments, and that, if in any country it should from any cause happen to exceed that proportion, the excess would infallibly be exported to be divided amongst the other countries. I have, however, always supposed that my readers would understand me to mean that this would be strictly the fact only if money could be exported free from all expense. If the expenses of exporting money to France be 3 per cent., to Vienna 5 per cent., to Russia 6 per cent., and to the East Indies 8 per cent., the currency of England may exceed its natural level as compared with those countries by 3, 5, 6, and 8 per cent. respectively, and consequently the exchange may permanently continue depressed in th[ose pr]oportions. If an excess of currency once occurs, [the unfa]vourable exchange must continue till some alterati[on in] the relative amount of currency. The circumstances which [may] occasion such an alteration are numerous, and are fully detailed in the papers which I left with you. To the precise agreement between the effects of an augmented currency and the effects of a subsidy I most particularly request your attention, as on such agreement depends the whole success of the argument which I am advancing in favour of my opinion that an unfavourable exchange has no tendency to correct itself. It may be urged that the relative state of high prices at home occasioned by an augmentation of currency is the natural effect of such a cause, but that this is not the case in a subsidy; that the exportation of commodities in payment of a subsidy is forced, and that it will produce a glut in the foreign market, but that after the subsidy is paid and the necessity for exportation shall cease prices will rise in the foreign market to their former rate. This however will not be true. Commodities may rise in a trifling degree abroad, but cannot regain their former rate unless the exchange should also rise to par, but this it can never do whilst the demand for bills do[es] not exceed the supply. Now, as the prices of foreign commodities in the home market, which could not have been supplied in the usual abundance during the operation of the subsidy when we had a large balance to pay, would fall, and would be in greater demand from the moment that our commodities would be received in exchange, the exportation of our goods would be balanced by the importation of foreign goods, and the sellers of bills would neither exceed nor fall short of the purchasers. These are the substance of the amendments which I wish to make to my paper, which is now so faulty that I shall be glad to have it returned to me. Have the goodness to bring it with you when you come to town.

I am, dear Sir,
Yours with great esteem,
DAVID RICARDO.

XI[49].

LONDON, _29th, August, 1812_.

MY DEAR SIR,

I intend leaving town this evening for Ramsgate, where I think I shall stay about a fortnight, so that I cannot accept your kind invitation for Saturday next; but I hope it will not be long before I bend my steps towards your hospitable roof. If on Saturday the 19th of September you should be quite disengaged and it should be every way convenient to you and Mrs. Malthus, I shall be glad to take tea with you on the evening of that day. I shall be obliged to quit you on the Monday morning. I hope I need not say that I shall be exceedingly sorry if I put you to the least inconvenience and that it will be equally agreeable to me to visit you on any Saturday after the 19th if I am not engaged to go to Ramsgate.

Perhaps you will be so good as to write a few lines directed to the Stock Exchange a few days previously to the 19th as I shall certainly be in town at that time. I am obliged to you for the interest you take in the price of Omnium. It appears to be in a very thriving condition. Mr. Goldsmid[50] informs me that at the period of the improvement in the exchange about Christmas last there were no importations, as far as he knows, of gold from France. A small quantity was imported from Lisbon. I have consulted Wetenhall's list[51], and the following appear to be the variations in the exchange and the price of gold about Christmas last.

+----------+----------+-------------+-------------+
| | | | |
| | Exchange | Doubloons, | Portuguese |
| | with | per oz. | gold, |
| | Hamburg. | | [per. oz.] |
| | | | |
+----------+----------+-------------+-------------+
| | | | |
| 1811. | | L _s._ _d._ | L _s._ _d._ |
| Nov. 29 | 24 | 4 15 0 | |
| Dec. 3 | 24.6 | | 4 18 6 |
| " 6 | 24.6 | 4 14 6 | 4 18 6 |
| " 13 | 25 | 4 15 6 | |
| " 20 | 25 | | 4 19 0 |
| " 31 | 27.6 | | |
| 1812. | | | |
| Jan. 3 | 27.6 | 4 14 0 | 4 18 6 |
| " 31 | 27.6 | | 4 18 6 |
| Feb. 21 | 28 | | 4 17 0 |
| Mar. 20 | 29 | | 4 15 6 |
| " 31 | 29.4 | 4 14 6 | 4 13 6 |
| April 21 | 29.4 | 4 17 6 | 4 17 6 |
| June 5 | 28.6 | | 4 18 6 |
| July 31 | 28.9 | 4 19 0 | 5 0 0 |
| Aug. 28 | 28.9 | 5 0 0 | |
| | | | |
+----------+----------+-------------+-------------+

The price of dollars yesterday was 6/31/2 per oz., higher by one penny than any price ever yet quoted. I should think that a very trifling rise more will send the tokens out of circulation. We will speak on our old subject when we meet. I am now in great haste and must therefore conclude. Pray make my kind compliments to Mrs. Malthus,

And believe me, my dear Sir,
Yours very truly,
DAVID RICARDO.

[At the end is written in pencil in Malthus's handwriting, 'Was any bullion imported from Hamburg in March?']

XII.

LONDON, _17 Dec., 1812_.

MY DEAR SIR,

I have written to Mr. Thornton[52] to request him to meet you at dinner, at my house, on any day most convenient to him, after Saturday and before Thursday, but I have not had his answer in time for this day's post. I will send you a line at the King of Clubs. I shall only ask Mr. Sharp to meet us. Will you not stay with us whilst you are in town? I assure you it would be quite convenient, and it would afford me great pleasure. If Mrs. Malthus accompany you it will be still more agreeable, and I am desired by Mrs. Ricardo to add her solicitations to my own.

On many points connected with our old question we are I believe agreed,--though there is yet some difference between us. I have not lately given it so much consideration as you have,--and I always regret that I do not put down in writing, for I have a very treacherous memory, the chief points of difference that occur in our discussions. I cannot help thinking that there is no unfavourable exchange which may not be corrected by a diminution in the amount of the currency, and I consider this to afford a proof that the currency must be redundant for a time at least. Whilst the exchange is unfavourable it is always accompanied, though not always caused, by an excess of currency. With best respects to Mrs. Malthus,

I am, my dear Sir,
Yours most truly,
DAVID RICARDO.

... As I was about leaving the city I received Mr. Thornton's answer. He is engaged on Wednesday and Thursday, and has fixed on Monday for our meeting, but he wishes us to meet at his house as there is to be a debate in the House of Lords on the Bullion question, and he is not sure that his presence may not be necessary in the Commons. I will settle this point with him, and if you do not hear from me I shall expect you at my house on Monday, if you do not agree to come on Saturday evening.

NOTE.--Thomas Tooke, in his 'History of Prices and of the State
of the Circulation from 1839 to 1847' (publ. 1848)[53], refers to
this dispute between Ricardo and Malthus, on the relation of the
currency to the balance of trade, and quotes long extracts from
the article of Malthus in the Edinburgh Review, where (as in this
correspondence[54]) Malthus maintains that the precious metals are
continually used in payments made by one country to another even if,
till that moment, the currencies of both have been at their usual
level. The view of Ricardo is that nothing but the state of the
currency can influence the foreign exchanges. As late as 1840
statesmen clung to the idea that the Directors of the Bank of
England could only operate on the exchanges by increasing or
diminishing the circulation[55]. Tooke (followed later by Newmarch,
hardly a less authority) sides with Malthus, and thinks that
Ricardo's reply to him, in the Appendix to the Tract on Bullion, is
'little more than a repetition in varied forms of expression,
according to the phraseology peculiar to the theory in question, of
the axiom that gold will not be exported unless it is cheaper than
another commodity, assuming consequently the fact to have been that
all commodities were at that time dearer in this country than they
were abroad, and relatively to gold;'--whereas it appears[56] that
between 1809 and 1811 the bulk of commodities were at a far higher
price (measured in gold) on the Continent than in England; the
'continental system' had forced vast stores of goods to lie
unsaleable in England for want of physical ability, on the part of
the merchants of them, to land them on the Continent, though they
did their best to smuggle them by way of Heligoland or Turkey into
Germany and the door of Portugal was ajar. Coffee was unsaleable in
England at 6_d._ the pound, and at the same time it was fetching
4_s._ or 5_s._ on the Continent. Napoleon used to look at the
English price current, and, if he found gold dear and coffee cheap
in England, he was satisfied that his Berlin and Milan decrees were
well carried out, while the English saw only another proof that the
Bank was extending its issues overmuch. Tooke and Malthus agreed
that the difference between the market price and the mint price of
gold bullion was the full measure of the depreciation of the
currency; but the 'ultra-bullionists' would not stop there. Tooke,
like Ricardo on another occasion (see Letter XLII), had to 'write a
book to convince' them, namely his 'Thoughts and Details on the High
and Low Prices of the last Thirty years,' (1823).

XIII.

LONDON, _30th Dec., 1813_.

MY DEAR SIR,

I have been amusing myself for one or two evenings in calculating the exchanges, price of gold, etc., at Amsterdam, and I enclose the result of my labour. I have every reason to believe that my calculations are correct,--though I am somewhat puzzled at the profit which there appears to be on the importation of gold from Amsterdam, if the prices there be quoted correct [_sic_]. If the difference were the other way, we might ascribe it to the money of Holland not being so good as it ought to be by the mint regulations; but in the present instance for guilders, as good as they are coined, gold can be bought 9-1/2 per cent. cheaper than in London. I am told that gold which cannot be exported has sunk considerably in price although gold that may be exported keeps its price. I fully expect that foreign gold will be lower.

We have had a continuance of foggy weather ever since Monday. We are obliged to burn candles during the day, and at night it is with the greatest difficulty we can find our way to our homes. I hope you are more fortunate and breathe a clearer atmosphere. We shall expect you in Brook Street on your next visit to London. Have the goodness to write the day before you come. With best wishes to Mrs. Malthus,

I am, dear Sir,
Yours very truly,
DAVID RICARDO.

[TABLES ENCLOSED IN LETTER XII.]

Columns 11 and 12 will show on inspection whether silver be passing from London to Amsterdam or from Amsterdam to London. Suppose the price of silver in London to be 6_s._ 7_d._ and the exchange with Amsterdam 28_s._ Against 6_s._ 7_d._ in column 11 the par of exchange is 29.41 in column 12; consequently being at 28 it is unfavourable to Amsterdam, and silver can be exported from Amsterdam to London with a profit of 5 per cent. If under the same circumstances the exchange had been 31, silver could have been exported to Amsterdam with a profit of 5 per cent.

Columns 8, 9 and 10 will show from which country gold may be profitably exported. Suppose the price of gold in Amsterdam to be 16 per cent. premium, the agio 3 per cent., the exchange with London 31, and the price of gold in London L5 10_s._, from which country would gold be exported and with what profit?

Against 16 per cent. in column 1 the par of exchange in column 8 is 39.64, and against L5 10_s._ the price of gold in London in column 9 the multiplier .708 stands in column 10. 39.64 multiplied by .708 gives 28.06 as the par for bank notes; therefore, when the exchange is at 31, it is unfavourable to Holland, and gold may be exported from thence with a profit of 10-1/2 per cent. nearly. Or thus: an oz. of standard gold, when the marc could be bought at 16 per cent. premium at Amsterdam, would cost 154.3 Flemish shillings banco, when the agio was 3 per cent., which reduced into English money at 31 [Flemish] shillings per L sterling will give L4 19_s._ 6-3/4_d._ But it will sell in London for L5 10_s._ which is a profit of 10-1/2 per cent. nearly.

Table Key

1: Price of gold at Amsterdam. Premium on _f._ 355 per marc.
2: Value of a marc in current guilders.
3: Corresponding price of an oz. of standard gold in London.
4: Corresponding price of an oz. of standard silver in London.
5: Value of an oz. of standard gold in Flemish current shillings.
6: Value of an oz. of standard gold in Flemish Banco shillings.
Agio 3 p.c.

+--------------+----------+-------------+---------+----------+-------+
| 1 | 2 | 3[57] | 4 | 5 | 6[58] |
+--------------+----------+-------------+---------+----------+-------+
| | |L _s._ _d._ | | | |
| Par _f._ 355 |_f_ 355 | | 68.00 | 137 | 133 |
| | | | pence | | |
| 1 p.c. prem. | 358.55| | 67.32 | 138.4 | 134.3 |
| 2 " | 362.10| | 66.67 | 139.8 | 135.7 |
| 3 " | 365.65| | 66.02 | 141.3 | 137.2 |
| 4 " | 369.20| | 65.38 | 142.5 | 138.6 |
| 5 " | 372.75| | 64.76 | 143.9 | 139.8 |
| 6 " | 376.30| | 64.15 | 145.3 | 141.1 |
| 7 " | 379.85| | 63.55 | 146.6 | 142.5 |
| 8 " | 383.40| | 62.96 | 148 | 143.9 |
| 9 " | 386.95| | 62.39 | 149.3 | 145.3 |
| | 389.37|3 17 10-1/2 | 62 | 150.3 | 146.0 |
|10 " | 390.50|3 18 1 | | 150.7 | 146.3 |
|11 " | 394.05|3 18 10 | | 152.1 | 147.6 |
|12 " | 397.60|3 19 6-1/2 | | 153.5 | 149.0 |
|13 " | 401.15|4 0 3 | | 154.8 | 150.3 |
|14 " | 404.70|4 0 11-1/2 | | 156.2 | 151.7 |
|15 " | 408.25|4 1 8 | | 157.5 | 152.9 |
|16 " | 411.80|4 2 4-1/2 | | 158.9 | 154.3 |
|17 " | 415.35|4 3 0-1/2 | | 160.3 | 155.6 |
|18 " | 418.90|4 3 9 | | 161.7 | 157.0 |
|19 " | 422.45|4 4 5-1/2 | | 163.1 | 158.3 |
|20 " | 426 |4 5 2 | | 164.5 | 159.6 |
|21 " | 429.55|4 5 10-1/2 | | 165.8 | 161.0 |
+--------------+----------+-------------+---------+----------+-------+

Table Key

7: Real par of exchange in Flemish current shillings per L sterling
in gold.
8: Real par of exchange in Flemish Banco shillings per L sterling in
gold. Agio 3 p.c.
9: When the price of gold in London in bank notes is
10: The bullion par must be multiplied by
11: Price of standard silver in London in bank notes per oz.
12: Par of exchange with Amsterdam in Banco. Agio 3 p.c.

+-----------+-------------+-------------+------+----------+----------+
| 7 | 8 | 9 | 10 | 11 | 12 |
+-----------+-------------+-------------+------+----------+----------+
| | | L _s._ _d._ | |_s._ _d._ | |
| 35.20| 34.17 | | | | |
| (1.) 35.55| 34.51 | 4 0 0 | .973 | 5 2 | 37.48 |
| (2.) 35.90| 34.85 | 4 1 0 | .961 | 5 3 | 36.88 |
| (3.) 36.25| 35.19 | 4 2 0 | .949 | 5 4 | 36.60 |
| (4.) 36.61| 35.54 | 4 3 0 | .938 | 5 5 | 35.75 |
| (5.) 36.95| 35.87 | 4 4 0 | .927 | 5 6 | 35.21 |
| (6.) 37.31| 36.22 | 4 5 0 | .916 | 5 7 | 34.68 |
| (7.) 37.66| 36.56 | 4 6 0 | .905 | 5 8 | 34.17 |
| (8.) 38.01| 36.90 | 4 7 0 | .895 | 5 9 | 33.67 |
| (9.) 38.36| 37.24 | 4 8 0 | .885 | 5 10 | 33.19 |
| 38.61| 37.48 | | | | |
|(10.) 38.71| 37.58 | 4 9 0 | .875 | 5 11 | 32.72 |
|(11.) 39.06| 37.92 | 4 10 0 | .865 | 6 0 | 32.27 |
|(12.) 39.62| 33.27 | 4 11 0 | .856 | 6 1 | 31.84 |
|(13.) 39.77| 38.62 | 4 13 0 | .838 | 6 2 | 31.42 |
|(14.) 40.12| 38.96 | 4 15 0 | .820 | 6 3 | 30.98 |
|(15.) 40.48| 39.30 | 4 17 0 | .803 | 6 4 | 30.58 |
|(16.) 40.83| 39.64 | 4 19 0 | .786 | 6 5 | 30.17 |
|(17.) 41.18| 39.98 | 5 0 0 | .779 | 6 6 | 29.79 |
|(18.) 41.54| 40.32 | 5 2 0 | .764 | 6 7 | 29.41 |
|(19.) 41.89| 40.67 | 5 4 0 | .749 | 6 8 | 29.04 |
|(20.) 42.24| 41.02 | 5 6 0 | .735 | 6 9 | 28.69 |
|(21.) 42.59| 41.36 | 5 8 0 | .721 | 6 10 | 28.33 |
| | | 5 10 0 | .708 | 6 11 | 27.99 |
| | | | | 7 0 | 27.66 |
| | | | | 7 1 | 27.32 |
| | | | | 7 2 | 27.02 |
| | | | | 7 3 | 26.71 |
| | | | | 7 4 | 26.40 |
| | | | | 7 5 | 26.11 |
| | | | | 7 6 | 25.82 |
+-----------+-------------+-------------+------+----------+----------+

XIV.

LONDON, _1 Jan., 1814_.

MY DEAR SIR,

Having finished a table for the Hamburgh exchanges, similar to that which I have already sent you for Holland, I thought you might like to have a copy of it[59]. In this as well as in the other the result is not quite satisfactory; for example, at the present time I believe the exchange with Hamburgh is quoted 28_s._ and the price of dollars 6_s._ 11-1/2_d._ By the table it appears that with [such] a price of dollars the exchange at par would be 25_s._; consequently it is now unfavourable to Hamburgh 12 per cent., which appears to me to be excessively high. In fact, under the present circumstances, there can be no intercourse with Hamburgh, and the quotation must be only nominal. Mrs. Ricardo and I leave London to-morrow early for Bradford; from thence we intend going to Gatcomb[60], and expect to be in town again on Thursday. I hope we shall soon see you. With best wishes to Mrs. Malthus,

I am, dear Sir,
Yours very truly,
DAVID RICARDO.

Table Key

A: Price of a ducat or 53 grains of fine gold in marks banco.
B: Price of an oz. of standard gold in Flemish shillings banco.
C: Par of exchange with London in Flemish shillings banco per L
sterling of gold.
D: Corresponding price of an oz. of standard silver in London in
pence.
E: Corresponding price of an oz. of standard gold in London in L,
etc.
F: When the price of gold in London in bank-notes is per oz.
G: The bullion par of exchange must be multiplied by
H: When the price of dollars in London is per oz.
I: The par of exchange in silver is

+----+-------+------+------+------+------------+----+---------+------+
| A | B | C | D | E | F | G | H | I |
+----+-------+------+------+------+------------+----+---------+------+
| | | | | | L _s._ _d._| |_s._ _d._| |
|5.39|119.33 | 30.60| 70.97| | 4 0 0 |.973| 4 11-1/2| 35.08|
|5.45|120.66 | 30.94| 70.19| | 4 1 0 |.961| 5 1 | 34.22|
|5.51|121.99 | 31.28| 69.43| | 4 2 0 |.949| 5 2-1/2| 33.39|
|5.57|123.32 | 31.63| 68.68| | 4 3 0 |.938| 5 4 | 32.61|
|5.63|124.65 | 31.97| 67.95| | 4 4 0 |.927| 5 5-1/2| 31.87|
|5.69|125.98 | 32.33| 67.23| | 4 5 0 |.916| 5 7 | 31.15|
|5.75|127.31 | 32.68| 66.53| | 4 6 0 |.905| 5 8-1/2| 30.47|
|5.81|128.64 | 33.03| 65.84| | 4 7 0 |.895| 5 10 | 29.82|
|5.87|129.96 | 33.37| 65.17| | 4 8 0 |.885| 5 11-1/2| 29.19|
|5.93|131.29 | 33.72| 64.51| | 4 9 0 |.875| 6 1 | 28.59|
|5.99|132.62 | 34.07| 63.86| | 4 10 0 |.865| 6 2-1/2| 28.02|
|6.05|133.95 | 34.42| 63.23| | 4 11 0 |.856| 6 4 | 27.46|
|6.11|135.28 | 34.76| 62.61| | 4 13 0 |.838| 6 5-1/2| 26.93|
|6.17|136.61 | 35.08| 62 | 3.893| 4 15 0 |.820| 6 7 | 26.42|
|6.23|137.92 | 35.42| | 3.931| 4 17 0 |.803| 6 8-1/2| 25.93|
|6.29|139.25 | 35.76| | 3.968| 4 19 0 |.796| 6 10 | 25.46|
|6.35|140.57 | 36.11| | 4.005| 5 0 0 |.779| 6 11-1/2| 25 |
|6.41|141.89 | 36.45| | 4.043| 5 2 0 |.764| 7 1 | 24.55|
|6.47|143.21 | 36.79| | 4.081| 5 4 0 |.749| 7 2 | 24.13|
|6.53|144.54 | 37.14| | 4.119| 5 6 0 |.735| | |
|6.59|145.86 | 37.48| | 4.157| 5 8 0 |.721| | |
|6.65|147.19 | 37.83| | 4.195| 5 10 0 |.708| | |
|6.71|148.51 | 38.18| | 4.233| | | | |
|6.77|149.84 | 38.52| | 4.270| | | | |
|6.83|151.17 | 38.87| | 4.308| | | | |
|6.89|152.50 | 39.22| | 4.346| | | | |
+----+-------+------+------+------+------------+----+---------+------+

N.B.--3 marks are equal to 8 Flemish shillings banco. When dollars
are 4_s._ 11-1/2_d._, standard is 2-1/2_d._ more. When 6_s._ 1_d._,
3_d._ more. When 7_s._, 3-1/2_d._ more.

XV.

[Addressed to Penr[h]yn Arms, Bangor, North Wales.]

LONDON, _26 June, 1814_.

MY DEAR SIR,

... I cannot partake of your doubts respecting the effects of restrictions on the importation of corn in tending to lower the rate of interest. The rise of the price or rather the value of corn without any augmentation of capital must necessarily diminish the demand for other things even if the prices of those commodities did not rise with the price of corn, which they would (tho' slowly) certainly do. With the same capital there would be less production and less demand. Demand has no other limits but the want of power of paying for the commodities demanded. Everything which tends to diminish production tends to diminish this power. The rate of profits and of interest must depend on the proportion of production to the consumption necessary to such production,--this again essentially depends upon the cheapness of provisions, which is after all, whatever intervals we may be willing to allow, the great regulator of the wages of labour. Nothing can tend more effectually to diminish the demand abroad for our manufactures than to refuse to import corn and other commodities which we [had] usually taken in exchange for such manufactures. If we rigorously refused to import any [foreign] commodity whatever, I firmly believe that we should soon cease to export any commodity, even if we made gold an exception to the general rule. Our money would stand at a higher level than in other countries, but there are limits beyond which it could not go. All trade is at last a trade of barter, and no nation will long buy unless it can also sell,--nor will it long sell if it will not also buy. If by adopting such policy [_sic_] a country were to enhance the value of the raw materials which it consumed, of which corn is the principal, it would thereby lower the rate of interest. If otherwise, it might be deprived of many luxuries and many comforts, or might enjoy them in less abundance, but the rate of interest would not fall. This is a repetition, you will say, of the old story, and I might have spared you the trouble of reading at 200 miles distance what I had so often stated to you as my opinion before; but you have set me off, and must now abide the consequences. I never was more convinced of any proposition in Political Economy than that restrictions on importation of corn in an importing country have a tendency to lower profits. Remember me kindly to Mrs. Malthus.

Yours very truly,
DAVID RICARDO.

XVI.

GATCOMB PARK, NEAR MINCHIN HAMPTON, GLOUCESTERSHIRE,
_25th July, 1814_.

MY DEAR SIR,