John Wheatley’s Theory of International Monetary Adjustment

O f the bullionist writers who advocated restoration of the gold convertibility of England’s currency during the Bank Restriction period 1797–1821, few are as little known today as John Wheatley. Certainly his name is not as familiar as those of David Ricardo, Henry Thornton, Thomas Malthus, Francis Horner, William Huskisson, and other bullionists. Yet in some respects he was the most original of the group. His Essay on the Theory of Money and Principles of Commerce (1807) spelled out the logic and implications of the strict bullionist position more forcefully and systematically than any document before Ricardo’s High Price of Bullion: A Proof of the Depreciation of Bank Notes (1810). To Wheatley belongs much of the credit for expounding at least four hard-line bullionist propositions often attributed to Ricardo. First, money-stock changes have no effect on output and employment. Second, exchange rate depreciations, a high price of gold, and specie drains stem solely from an excess issue of currency. Third, being purely monetary phenomena, exchange rate changes, gold price movements, and specie drains are immune to real shocks operating through the balance of payments. Fourth, exchange rate depreciation and the excess of market over mint price of gold constitute proof and measure of overissue in inconvertible paper regimes. To these can be added a fifth contribution: his demonstration that monetary expansion and price inflation can continue indefinitely on a given gold base if all countries expand in step. Wheatley derived these propositions from an analytical model characterized by sharp dichotomization of real and monetary sectors. He sought to show that monetary shocks do not affect real variables nor real shocks monetary