The Measure of Value Stated and Illustrated / With an Application of it to the Alterations in the Value of the English Currency since 1790

by T. R. Malthus

It cannot be doubted that the rate of interest and profits was comparatively high during the late war, and this high rate of profits would naturally have a tendency to lower the bullion price of labour; but this was more than counterbalanced by the tendency of a brisk demand for corn and labour to raise money prices generally, including labour, and the consequence was a fall, during the greatest part of the time, in the value of bullion.

It can as little be doubted, that the rate of interest and profits has fallen since the war, and this low rate of profits would have a natural tendency to raise the bullion price of labour; but this has been more than counterbalanced by the tendency of a slack demand for corn and labour to lower prices generally, and the consequence has been a rise in the value of gold, and a still greater rise in the value of the currency.

This rise, however, in the value of the currency, has been by no means so considerable as those are inclined to make it, who would measure it by the fall of agricultural produce; nor is it so inconsiderable as those imagine who would measure it solely by the difference between paper and gold. But whether this difference is the whole of what can be fairly attributed to the Bank Restriction and the return to cash payments, or not, it may by no means be the whole change which has taken place in the value of the currency, when compared with an object which has not changed.

It would be very desirable to be able to form an accurate estimate of the rise and fall which has taken place in the bullion price of labour for the last thirty years; but unfortunately, during the latter part of the period, no general estimates of the price of labour have been made, at least none that have come to my knowledge; and there is reason to think that, under the late stagnation in the demand for agricultural labour, the common rate of wages in England has been more than usually interrupted by the operation of the poor laws. On this account, I have made some inquiries respecting wages in Scotland, and have obtained a most valuable communication; but before I refer to it particularly, it may be useful to consider the results of the data we possess in England. The rise in the bullion price of labour from 1790 to 1810 and 11, may be established upon satisfactory grounds, although the amount of the fall which has since taken place may be a matter of considerable uncertainty.

According to the communications to the Board of Agriculture, the price of labour, in 1790, was 8s. 1d. per week. In 1796, Sir F. M. Eden, in his work on the Poor, stated it at 8s. 11d. per week. In 1803, the communications to the Board of Agriculture make it 11s. 5d., and in 1810 and 11, according to satisfactory returns obtained by Arthur Young, it was 14s. 6d.[S] This was a steady and very great rise in the price of agricultural labour during the course of twenty years. But in 1810 and 11, paper had separated from gold to a considerable extent. Taking an average of the market prices of gold during these two years, this price was £4. 13s. and reducing the 14s. 6d. currency to a bullion price, it will appear that the bullion wages of labour in 1810 and 11 were a little above 12s. The bullion price of labour had therefore risen 50 per cent. Now, on the supposition that manufacturing and mercantile labour continued to bear the same proportion to agricultural labour as before,[T] it is obvious that there would be a difference of 50 per cent. between the quantity of labour and profits with which an ounce of gold could be purchased at the former period, compared with the latter; that is, while labour was 8s. 1d. per week, it would require a piece of muslin, which would command above nine and a half weeks labour, to purchase an ounce of gold; but when wages were 12s. per week, a piece of muslin, which would command little more than six and a half weeks labour, would be sufficient for the purpose. The natural value of bullion, therefore, the quantity of English labour and profits of which it was composed, must have fallen to that extent.

Mr. Tooke, in his late valuable publication, after stating very justly that an unusual proportion of unfavourable seasons must have had a considerable effect in raising the prices of corn and labour during the period adverted to, goes on to “ask upon what ground of fact or reasoning can the high prices included in such a period be ascribed, in fairness, to alterations in the currency, beyond the degree indicated by the difference between paper and gold, when, after a sufficient time has elapsed for the subsidence of the extraordinary effects of such an unusual succession of bad seasons, there is a restoration to a level even somewhat lower than that from which the rise is assumed to have taken place, and to have continued progressively.”

Of the subsidence here alluded to, before 1814, Mr. Tooke has certainly not given proofs sufficiently general; but without dwelling on this point, it appears to me that the question of the fall in the value of the currency including the gold, is exclusively a question of fact, and must be referred to some criterion. It is a very intelligible thing to say that paper has fallen, if it has fallen with regard to the gold which it professes to represent; but it is not intelligible to say that gold has not fallen, when it is acknowledged to have fallen both with regard to its power of purchasing generally, and its power of commanding labour; unless a reference can be made for the proof of it to some more satisfactory criterion. A season of scarcity will make corn dear, and a season of plenty cheap, without necessarily affecting labour in either case, as is shown by Adam Smith, and proved by repeated experience. But if seasons of scarcity occur so frequently as to raise generally the bullion price of labour, it must of necessity be accompanied by a power of purchasing bullion with a smaller quantity of labour and profits; otherwise the event could not occur. Whenever it does occur, the natural value of bullion falls.[U]

The observations here made, with a view to place the controversy respecting the alterations in the currency on its proper ground, and to make the necessary distinction between facts and the causes which may have produced them, apply still more strongly to the publication of Mr. Blake, in much of the reasoning of which I entirely concur. He proposes to prove that it was the gold which rose, and not the paper which fell during the war, although he acknowledges as a matter of fact, that almost all prices, including labour, rose not only in paper but in gold. This has, no doubt, the air of a contradiction, according to all the common modes of estimating the value of money; and it certainly is not removed by showing that the main cause of these high prices was a great demand compared with the supply of commodities—a cause which, involving as it always does, more transactions on credit, and a more rapid circulation of currency, is one of the most legitimate causes of a fall in the value of money.

Mr. Blake, however, is certainly right in his view of the effects of an unfavourable exchange on the price of gold, when it ceases to form a part of the circulation. It is not only possible that from this cause gold might for a time rise in value much beyond the expense of transporting it; but as a matter of fact, this did unquestionably occur at certain periods during the war. There is no account of the price of agricultural labour in England subsequently to 1811. Probably it did not rise any more; but if it did, judging from what took place in Scotland, it did not rise sufficiently to balance the subsequent rise in the market price of gold, which was from £4. 15s. in 1811, to £5. 8s.[V] in 1813. Consequently, in 1813, as compared with 1811, the value of gold must have risen considerably; and on the supposition that the price of labour did not rise after 1811, it would appear that the natural and exchangeable value of gold, as measured by the standard, rose above 13½ per cent.

The rise of gold from the sudden fall of the exchange in consequence of Buonaparte’s return from Elba was still more remarkable. The price had been as low, in the spring of 1815, as 4l. 9s., and without any known change in the currency price of labour, it rose suddenly to 5l. 5s., or 18 per cent.; and consequently, to purchase an ounce of gold it was necessary at that time to give commodities worth 18 per cent. more of agricultural labour than it might have been purchased for a month or two before. Whatever might have been the case with the paper, there could not, on any view of the subject, be the slightest foundation for the supposition of a sudden abundance and cheapness of labour just before the battle of Waterloo. In fact, agricultural labour had not fallen, and manufacturing labour was higher than usual; so that even without considering labour as a standard, it must have been acknowledged, that, of these two objects which had altered in relative value, it was the gold which had risen, not the labour which had fallen.