Ricardo And Thornton On The "Unfavourable" Rate Of Exchange

At a distance of nearly two centuries since it broke out, the Bullion Controversy is still an endless source of questions and interpretations. The most recent contributions to the debate have focussed mainly on two points. The first is the position taken by one of most eminent participants in the controversy, David Ricardo. The second is the microeconomics of precious metals flows and the workings of the markets involved: the market for bills of exchange and the market for gold. Here attention has shifted from the question "Why?" (real vs. monetary causes of gold flows) to the question "How?" (which markets move first? Which are the signals that prompt the behaviour of the agents?). Following this trend, a recent interpretation of Ricardo's monetary theory (De Boyer in this volume and 2007) claims that Ricardo rejected the "gold points" mechanism that Thornton had suggested and was unable to provide a satisfactory explanation for gold outflows. In this note I will argue, instead, that Ricardo, like Thornton, Malthus and most of the participants in the controversy aligned in the Bullionist camp, was well aware of the mechanics of gold movements and, indeed, based his theory on it. However, De Boyer is right in pointing out that there are some obscurities in Ricardo's writings regarding the role played by commodity prices in variations in the rate of exchange and in the transmission mechanism of an 'overissue'. The fact that Ricardo dwelt little on this issue , may have been due to the consideration that it was common ground and required no further clarification, or even to sheer lack of interest, his main focus being the value of the currency, measured by its purchasing power over gold, and not the dynamics of international trade.