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The Early Round Of The Bullionist Debate 1800-1802: Boyd, Baring And Thornton’S Innovative Ideas

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  • Arie Arnon

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    (Dept. of Economics, Ben-Gurion University of the Negev)

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    Abstract

    The Restriction period, which began in England in 1797, marked a crucial turning point for both monetary theory and policy. The debates during the Restriction concerning the complicated relationship between inflation, the exchanges and monetary aggregates came to be known as the Bullionist Debate. The Bullionists were critical of the Bank of England and supported a return to convertibility, whereas the anti-Bullionists defended the Bank and were satisfied with the inconvertible system. Throughout the period, discussions fluctuated in intensity, as Jacob Viner (1937) and Frank W. Fetter (1965) pointed out, with the market price of gold. When the price of gold in terms of inconvertible notes was high, as in 1800-01 and in 1809-10, and the exchanges were bad, the controversy intensified. The first round in the debate started with a Bullionist argument published by Walter Boyd (1801) to which Francis Baring (1801), the anti-Bullionist, reacted; their intense exchange provides an historic context for examining and re-evaluating Henry Thornton's seminal contribution to monetary theory. The paper will argue that Thornton’s path breaking Paper Credit (1802) presents an innovative and consistent anti-Bullionist position, one that differs from that of Baring who accepted the Smithian Real Bills Doctrine for both convertible and inconvertible situations. Thornton, on the other hand, rejected the Real Bills Doctrine and more generally Smith’s monetary thinking as it applied to both convertible and inconvertible monetary arrangements. The fundamental idea behind Thornton's defense of the Bank of England and inconvertibility was the crucial role of the Bank in managing the monetary system under both currency regimes. After 1802, particularly as a member of the famous Bullion Committee, Thornton played an 3 important role on the side of the Bullionists that resulted in his being described by later scholars as a "moderate Bullionist." However, as I intend to show, his reserved support for convertibility during this period reflects his disappointment with the Bank directors, whose poor management skills and fundamental misunderstanding of the monetary system threatened the stability of the British economy. For this reason, the shift in Thornton's position may be better understood as a political and pragmatic response to an untenable situation rather than as a reversal of his theory or a principled rejection of an inconvertible, properly managed, regime.

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    Bibliographic Info

    Paper provided by Ben-Gurion University of the Negev, Department of Economics in its series Working Papers with number 0714.

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    Length: 60 pages
    Date of creation: 2007
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    Handle: RePEc:bgu:wpaper:0714

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    1. Skaggs, Neil T., 2003. "Thomas Tooke, Henry Thornton, and the Development of British Monetary Orthodoxy," Journal of the History of Economic Thought, Cambridge University Press, vol. 25(02), pages 177-197, June.
    2. David Laidler, 2002. "Two Views of the Lender of Last Resort: Thornton and Bagehot," UWO Department of Economics Working Papers 20029, University of Western Ontario, Department of Economics.
    3. Charles F. Peake, 1978. "Henry Thornton and the Development of Ricardo's Economic Thought," History of Political Economy, Duke University Press, vol. 10(2), pages 193-212, Summer.
    4. David Laidler, 1981. "Adam Smith as a Monetary Economist," Canadian Journal of Economics, Canadian Economics Association, vol. 14(2), pages 185-200, May.
    5. Smith, Adam, 1776. "An Inquiry into the Nature and Causes of the Wealth of Nations," History of Economic Thought Books, McMaster University Archive for the History of Economic Thought, number smith1776.
    6. Thomas M. Humphrey, 1989. "Lender of last resort: the concept in history," Economic Review, Federal Reserve Bank of Richmond, issue Mar, pages 8-16.
    7. Perlman, Morris, 1986. "The Bullionist Controversy Revisited," Journal of Political Economy, University of Chicago Press, vol. 94(4), pages 745-62, August.
    8. Robert L. Hetzel, 1987. "Henry Thornton: seminal monetary theorist and father of the modern central bank," Economic Review, Federal Reserve Bank of Richmond, issue Jul, pages 3-16.
    9. David Laidler, 2000. "Highlights of the Bullionist Controversy," UWO Department of Economics Working Papers 20002, University of Western Ontario, Department of Economics.
    10. Peake, Charles F, 1995. "Henry Thornton in the History of Economics: Confusions and Contributions," The Manchester School of Economic & Social Studies, University of Manchester, vol. 63(3), pages 283-96, September.
    11. Charles F. Peake, 1982. "Henry Thornton: an Accurate Perspective," History of Political Economy, Duke University Press, vol. 14(1), pages 115-120, Spring.
    12. Hicks, J. R., 1979. "Critical Essays in Monetary Theory," OUP Catalogue, Oxford University Press, number 9780198284239.
    13. Antoin Murphy, 2003. "Paper credit and the multi-personae Mr. Henry Thornton," The European Journal of the History of Economic Thought, Taylor & Francis Journals, vol. 10(3), pages 429-453.
    14. Arnon, Arie, 1987. "Banking between the Invisible and Visible Hands: A Reinterpretation of Ricardo's Place within the Classical School," Oxford Economic Papers, Oxford University Press, vol. 39(2), pages 268-81, June.
    15. Neil T. Skaggs, 1995. "Henry Thornton and the Development of Classical Monetary Economics," Canadian Journal of Economics, Canadian Economics Association, vol. 28(4b), pages 1212-27, November.
    16. Antoin Murphy, 2005. "Rejoinder to Skaggs's Treating schizophrenia: a comment on Antoin Murphy's diagnosis of Henry Thornton's theoretical condition," The European Journal of the History of Economic Thought, Taylor & Francis Journals, vol. 12(2), pages 329-332.
    17. Reisman, David A, 1971. "Henry Thornton and Classical Monetary Economics," Oxford Economic Papers, Oxford University Press, vol. 23(1), pages 70-89, March.
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