Napoleon’s fall, Ricardo’s rise
Consequent upon the enormous fortune he had made on the occasion of Napoleon’s defeat, Ricardo by late 1815 decided to withdraw from the Stock Exchange and turn his time and energy to political economy.
He invested a great part of his money in landed estates. According to his theory of income distribution as expounded in the Essay, with a growing population corn production must be increased, which requires extending the cultivation of land to ever less fertile plots of land or intensifying the cultivation of given plots. The scarcity of land(s) increases and yields its proprietors rising rents per acre. In parallel the general rate of profits and, in its wake, the rate of interest tend to fall. Since the price of an acre of a particular plot of land is a perpetuity that is equal to the ratio of the rent per year and the rate of interest, with the numerator rising and the denominator falling, the price of land will rise. According to Immanuel Kant, there is nothing more practical than a good theory, a wisdom Ricardo expressed repeatedly and followed in practical life: he bought large plots of land. He retired from his activities at the Stock Exchange to his country house Gatcombe Park near Minchinhampton, Gloucestershire, which he had acquired in 1814.In February 1816 Ricardo published some Proposals for an Economical and Secure Currency (see Works IV: 43-141), in which he put forward anew his “Ingot Plan”. The plan suggested a return to the Gold Standard by making bank notes convertible not into specie (coins), but into bullion (gold ingots), which implied the demonetization of gold in domestic circulation. This would have several desirable effects: it would allow Britain to continue to use paper money as the actual means of payment, which Ricardo endorsed; it would reduce the need for gold reserves held by the Bank of England and thus mitigate the upward pressure on the value of gold; and, last but not least, it would curb the huge profits pocketed by the governors and directors of the Bank (which remained a private institution until 1946), who benefited from the appreciation of gold. These profits, Ricardo insisted, belonged to the public.
The House of Commons decided on a plan for the gradual return to note convertibility in bullion, starting in early 1820 and ending in May 1821 at the pre-1797 parity. During this period Ricardo’s Ingot Plan was implemented. However, immediately after the old parity had been restored, the Bank of England decided to return to note convertibility in coin. This led to huge profits reaped by its directors, who in anticipation of the move had accumulated large amounts of gold, which they now sold to their bank at very favourable terms - precisely the kind of selfenrichment Ricardo chastised.In 1823 Ricardo composed a Plan for the Establishment of a National Bank, which was published posthumously in February 1824 (see Works IV: 271-300). His plan had first taken shape in 1815 while he was composing the pamphlet Economical and Secure Currency and was then put forward in the first edition of the Principles (Works I: 361-3). Of the two operations that the Bank of England performed - issuing paper currency and advancing loans to merchants and so on - the former should be taken away from it and given to independent commissioners, who act as bankers to the government, but are “totally independent of the control of ministers”. This would not thwart the provision of the economy with money, but “in a free country, with an enlightened legislature” (Works I: 362) transfer a part of the profits of the Bank to the national Treasury and thus to the public.