I lose no time in answering your obliging letter and endeavouring as far
as lies in my power to remove the very few objections which prevent us
from being precisely of the same opinion on the subject of money and the
laws which regulate its value in the countries which have constant
commercial intercourse with each other. I have no view in this
discussion but that which you have avowed, the circulation of truth; if
therefore I should fail to convince you, and you should express your
opinions in print, it is immaterial to me whether you mention my name or
not. I trust you will do that which shall most fully tend to establish
the just principles of the science.
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_.