Schools of Thought in Economics
Edited by Gilbert Faccarello and Heinz D. Kurz
Chapter 11: Bullionist and anti-bullionist schools
The bullionist controversy refers to the series of debates about monetary and banking issues that took place in England from 1797 to 1821. It arose in very particular circumstances, namely, the suspension of the specie convertibility of Bank of England notes, on 26 February 1797, after fears of a French invasion had caused a run on the banks. Great Britain had declared war on France in February 1793, and in 1797 a small French force did actually land on the Welsh coast. The Bank of England explained that the suspension was a temporary measure necessary to avoid the loss of its reserves. However, what was supposed to be a brief suspension of convertibility lasted 24 years, until six years after Napoleon’s defeat. The reasons and mechanisms of the increase in the market prices of gold and silver bullion that appeared as a consequence of this suspension were the main subject under discussion and gave the controversy its name. The bullionists criticized the Bank of England for taking advantage of the suspension of convertibility to finance the government’s military engagements and to over-issue banknotes. They argued that this excess pushed up the prices of commodities, bullion, and foreign currencies, and that the solution to these problems lay in an immediate return to the convertibility of notes into gold and silver coin, that is, into legal tender. On the opposite side, anti-bullionists justified the suspension. Their main argument was twofold. First, the high price of bullion was not linked to the inflation of money and prices but to real and financial causes that brought about a decrease of the exchange rate. Second, the suspension of payments of Bank of England banknotes in legal tender was necessary to guarantee the liquidity of the money market. According to them, the high price of bullion was the consequence of a combination of factors: the disruption of trade by the war, foreign war expenditure by the British government and the particular position of the Bank of England as the country’s central reserve. The bullionist thesis was first introduced in 1801 by Walter Boyd, to whom Francis Baring replied in the same year and Henry Thornton a year later. The bullionists were close to the Whigs’ Parliamentary opposition; among them, the most famous were Boyd, Francis Horner, Lord King, John Wheatley and David Ricardo. The anti-bullionists were close to the Bank of England and the Tory government; they included Baring, Thornton, Charles Bosanquet, John Hill, Nicolas Vansittart and Thomas Malthus. From an analytic point of view, the bullionists were more homogeneous than their opponents; they adhered to the quantity theory of money and favoured Hume’s balance of trade theory. Although all anti-bullionists emphasized the importance of the balance of payments, they had differences of opinion when it came to money and credit; Baring, Bosanquet and Hill agreed with Smith’s real bills doctrine, while Thornton rejected it. Rigid anti-bullionists contested the idea that the Bank of England could issue notes in excess, whereas moderate anti-bullionists thought it could. Thornton and Ricardo were the two great figures of this controversy, which considerably influenced nineteenth century English monetary and banking analysis.
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