The Bank of England Was Blamed by the “Bullionists” for the Restriction Crisis (1797-1821) But Defended by the “Anti-Bullionists”

Before 1800, decades of inconvertible paper money in England would have been considered unthinkable, and so previous monetary theorists had scarcely contemplated or analysed such an economy. But now writers were forced to come to grips with fiat paper, and to propose policies to cope with an unwelcome new era.

The political controversies during the restriction period centred on explaining the price inflation and depreciation and on assessing the role of the Bank of England. The ‘bullionists’ pointed out that the cause of the price inflation, the rise in the price of bullion over par, and the depreciation of the pound was the fiat money expansion. They further maintained that the central role in that inflation was played by the Bank of England, freed of its necessity to redeem in specie. Their opponents, the ‘anti-bullionists’, tried absurdly to absolve the government and its privileged bank of all blame, and to attribute all unwelcome consequences to specific problems in the particular markets involved. Depreciation in foreign exchange was charged to the outflow of bullion caused by excessive imports or by British war expenditures abroad (presumably unrelated to the increased amount of paper pounds or to the lowered purchasing power of the pound). The rise in the price of bullion was supposedly caused by an increased ‘real’ demand for gold or silver (again unrelated to the depreciated paper pound). The increases in domestic prices received less attention from the two sides of the debate, but they were attributed by the anti-bullionists to wartime disruptions and shortages in supply. Any ad hoc cause could be seized upon, so long as the great integrating cause, the expansion of bank credit and paper money, was carefully ignored and let off the hook. In short, the anti-bullionists reverted to mercantilist worry about ad hoc causes and the balance of trade on the market. The previous hard-won analysis of money and overall prices went by the board.

—Murray N. Rothbard, Classical Economics, vol. 2 of An Austrian Perspective on the History of Economic Thought (Auburn, AL: Ludwig von Mises Institute, 2006), 160-161.