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By Arie Arnon


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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