The resumption of payments

Five years after the publication of the Bullion Report, in June 1815, Napoleon was defeated at Waterloo. Thereafter the price of gold gradually declined. On 2 July 1819, Parliament voted the resumption of payments of banknotes in gold at the old mint price (£3 17s 10 ½d per ounce) in two steps: first in bullion from 1 May 1821, and then in gold coin from 1 May 1823.

During 1815-19, the controversy was no longer about the causes of the high price of bullion, but the terms and requirements for the resumption of payments. A first debate concerned the mint price at which it would be desirable to re-establish payments. The Attwood brothers, Matthias and Thomas, and Henry James, from Birmingham, a town of arms manufacturers strongly affected by peace, lobbied for a devaluation of the pound to avoid the consequences of the deflation of prices. They were quantity theorists and thought that a return to the old mint parity would be synonymous with the defla­tion of banknotes. However, the great deflation of banknotes did not happen. A second debate was about bimetallism. Since Newton’s reform and up until the suspension of payments, the mint ratio between gold and silver had been above the international ratio, therefore above the market price in London. As a consequence, the English standard system was mainly a gold standard. There was a consensus for the adoption of monomet­allism, but the question of the choice of the precious metal arose. Since the exchange with Hamburg was primordial and most foreign countries were on a silver standard regime, some people, including Ricardo, argued in favour of silver. In the end, the return to the old British gold standard was preferred. A third debate concerned the establishment of a gold bullion standard instead of a return to the gold specie standard. With the exception of Ricardo, the consensual opinion was that the maintenance of gold coin as legal tender and the return to payment in gold coin were desirable to restore confidence and eliminate forgery in small banknotes (Fetter 1965). The first step in the resumption of payments, that is, in gold bullion, two years before payments in gold coin, was understood to be provisory. In order to prepare the full resumption, the Bank of England bought gold with a view to sending it to the Royal Mint for coinage. Ricardo criticized these purchases.