The High Price of Bullion: A Proof of the Depreciation of Bank Notes

Ricardo argues that the high market price of gold bullion after 1797 was caused by an excessive quantity of Bank of England notes in circulation, not by a trade deficit, wartime remittances, or foreign subsidies. He rejects the view that the depreciation of the pound was merely a symptom of temporary disruptions. The proof, for Ricardo, lies in the divergence between the market price of bullion and its mint price: if gold were freely convertible and notes had not been over-issued, the two prices would coincide. The excess note issue forces the market price of the standard above its legal price.

The ingot plan was Ricardo's proposal to make Bank of England notes convertible only into gold bullion (bars), not into gold coin. Under this system, only large sums—enough to purchase a standard bar of gold—could be redeemed. Ricardo argued this would restore the value of the currency to its legal standard while conserving the nation's gold reserves, since small transactions would continue using paper. It was a way to achieve a sound currency without the expense and inconvenience of a full metallic circulation, and it later influenced debates over the gold-exchange standard.

Both Ricardo and Thornton were Bullionists—they agreed that the high price of bullion reflected a depreciation of banknotes. But they differed on the mechanism. Thornton developed the theory of the gold points and argued that a central bank had a responsibility to act as a lender of last resort during crises. Ricardo rejected the gold-points mechanism, instead appealing to Hume's price-specie-flow theory to show that the high price of bullion was the necessary consequence of an excess quantity of money. Where Thornton emphasized credit and crisis management, Ricardo emphasized strict monetary rules and the quantity theory.

The pamphlet heightened public and parliamentary alarm over the depreciation of the currency. The House of Commons formed a committee to examine the high price of bullion, which issued the famous and controversial Bullion Report of 1810. The report endorsed the Bullionist analysis, recommending a return to convertibility within two years. Although the resolutions were initially defeated in Parliament, the controversy shaped monetary policy debate for decades and established Ricardo as a leading authority on political economy. The pamphlet was widely read and went through multiple editions in quick succession.

The ideas expressed in The High Price of Bullion were not wholly original—they drew on the quantity theory of money associated with Hume and on arguments already circulating among Bullionists. What won Ricardo recognition was the clarity and rigor with which he presented the case, and the logical force of his proof linking the premium on bullion to over-issue. As one source notes, 'although the ideas expressed in Ricardo's celebrated first pamphlet were not original, they won him a name as a distinguished thinker on questions of political economy.' The pamphlet's rigor and persuasiveness, rather than its novelty, established his reputation.