I do not admit that if you were to double the medium of exchange it would fall to half its former value, not even if you were also to double the quantity of metal which was the standard of such medium. The consumption would increase in consequence of its diminished value, and the fall of its value would be regulated precisely by the same law as the fall in the value of indigo, sugar, or coffee.
Mr. Mushet will dine with us on Sunday. What do you think of Mr. Vansittart's financial talents?
Yours very truly,
David Ricardo.
Note.—Speaking in the House of Commons on Agricultural Distress, on May 7, 1822, Ricardo gives an illustration which bears on some points in the foregoing and following letters: 'Suppose my own case. I am possessed of a considerable quantity of land, the whole unburthened with a single debt. Now according to the honourable member (Mr. Attwood) I and the tenants on that land would have only been injured to the amount of the increase which the change in the value of money has made in the burthen of taxation; but we are in point of fact injured much more.' 'The superabundant supply' has caused a sinking in the value of corn greater than in proportion to the additional quantity itself. To understand why, take the case of a commodity introduced for the first time, say a particular kind of superfine cloth: 'If 10,000 yards of this cloth were imported, under such circumstances, many persons would be desirous of purchasing it, and the price consequently would be enormously high. Suppose this quantity of cloth to be doubled; the aggregate value of the 20,000 yards would be much more considerable than the aggregate value of the 10,000 yards, for the article would still be scarce and therefore in great demand. If the quantity of cloth were to be again doubled, the effect would still be the same, for, although each particular yard of the 40,000 would fall in price, the value of the whole would be greater than that of the 20,000. But, if they went on in this way increasing the quantity of the cloth until it came within the reach of the purchase [sic] of every class in the country, from that time any addition to its quantity would diminish the aggregate value. This argument would apply to corn. Corn is an article which is necessarily limited in its consumption, and, if you went on increasing it in quantity, its aggregate value would be diminished beyond that of a smaller quantity. I make an exception in favour of money. If there were only £100,000 in this country, it would answer all the purposes of a more extended circulation; but, if the quantity were increased, the value of commodities would alter only in proportion to the increase, because there is no necessary limitation of the quantity of money [wanted].' (Cf. Letter III, p. 3.) So on June 12th he says: 'Quantity regulates the value of everything,' though it is also true (he says in a speech of May 9, 1822) 'that the price of every commodity is constituted by the wages of labour and the produce [sic] of stock.'
III.
Stock Exchange, 24 March, 1810.
My dear Sir,
I have left you quite free for Friday, but I regret that your engagements will not conveniently allow you to come to us on that day. We shall expect you on Saturday morning. I hope Mrs. Malthus' visit will not be deferred longer than the next meeting of the King of Clubs[33].
It appears to me that you ascribe the difference in the variations of price which would probably be the effect of doubling the quantity of coffee, sugar, or indigo, on [the] one hand, or of doubling the quantity of the precious metals on the other, to a wrong cause. Coffee, sugar, and indigo are commodities for which, although there would be an increased use if they were to sink much in value, still, as they are not applicable to a great variety of new purposes, the demand would necessarily be limited; not so with gold and silver. These metals exist in a degree of scarcity, and are applicable to a great variety of new uses; the fall of their price, in consequence of augmented quantity, would always be checked, not only by an increased demand for those purposes to which they had before been applied, but to the want of them for entirely new employments. If they were in sufficient abundance, we might even make our tea-kettles and saucepans of them. It is to this essential difference between these commodities, and not to the circumstance of one of them being employed as a circulating medium, that I should attribute the different effects which would follow from the augmentation of their quantity. In any point of view however I do not see how it bears materially on the question between us, namely whether the precious metals are frequently resorted to for the payment of debts between countries when no disturbance has taken place in the amount or proportion of the currency.
I wonder as you do that the stocks have not felt the effects of Mr. Vansittart's vigorous system. The delay which has taken place in creating new stock, the good news from abroad, and, above all, the want of reflection in the mass of stockholders may be considered as the cause.
Ever truly yours,
David Ricardo.
Note.—'The King of Clubs' is described in the Life of Sir James Mackintosh, (by his son—2nd ed. 1836), vol. i. p. 137 (under date 1800): 'As an agreeable rallying point in addition to the ordinary meetings of a social circle, a dinner-club (christened "The King of Clubs" by Mr. Robert Smith [Bobus, brother of Sydney Smith]), was founded by a party at his [Mackintosh's] house, consisting of himself [Mackintosh] and the five following gentlemen, all of whom still survive:—Mr. Rogers, Mr. Sharp, Mr. Robert Smith, Mr. Scarlett, and Mr. John Allen. To these original members were afterwards added the names of many of the most distinguished men of the time; and it was with parental pride and satisfaction that he received intelligence some time after of their "being compelled to exclude strangers and to limit their numbers, so that in what way 'The King of Clubs' eats, by what secret rites and institutions it is conducted, must be matter of conjecture to the ingenious antiquary, but can never be regularly transmitted to posterity by the faithful historian."'—The biographer adds in a note that the Club was suddenly dissolved in the year 1824. Some of the most distinguished members are enumerated, among them Ricardo (l. c. p. 138 n.). To judge by a letter of Mackintosh to Sharp on 29th June, 1804, the Club at that date included (besides the writer and his correspondent) only Sydney Smith, Scarlett, Boddington, the poet Rogers, Whishaw, and Horner (Mack. Life, vol. i. 209). The time of meeting seems to have been the first Saturday of every month. See below Letter XLIV, but cf. XLIII. Add Memoirs of Horner, i. 193, under date April 1802, and Holland's Memoir of Sydney Smith i. 91, &c.
IV.
London, 10 Aug., 1810.
My dear Sir,
On my return to London, after a short excursion to Tunbridge Wells, I found your obliging letter. … On further reflection I am confirmed in the opinion which I gave with regard to the effect of opening new markets or extending the old. I most readily allow that since the war not only the nominal but the real value of our exports and imports has increased; but I do not see how this admission will favour the view which you take of the subject.
England may have extended its carrying trade with the capital of other countries. Instead of exporting sugar and coffee direct from Guadaloupe and Martinique to the continent of Europe, the planters in those colonies may first export them to England, and from England to the continent. In this case the list of our exports and imports will be swelled without any increase of British capital. The taste for some foreign commodity may have increased in England at the expense of the consumption of some home commodity. This would again swell the value of our exports and imports, but does not prove a general increase of profits nor any material growth of prosperity.
I am of opinion that