ABSTRACT
Despite his achievements, David Ricardo’s views on money have often been misunderstood and underappreciated. His advanced ideas had to wait until the twentieth century to be applied, and most historians of economic thought continue to consider him as an obsolete orthodox. The last book devoted in tribute to Ricardo as a monetary economist was published more than 25 years ago.
Ricardo on Money encompasses the whole of Ricardo’s writings on currency, whether in print, unpublished notes, correspondence, or reported parliamentary speeches and evidence. The aim of the book is at rehabilitating Ricardo as an unorthodox theorist on money and suggesting his relevance for modern analysis. It is divided into three parts: history, theory and policy. The first describes the factual and intellectual context of Ricardo’s monetary writings. The second part puts the concept of standard centre stage and clarifies how, according to Ricardo, the standard regulated the quantity – and hence the value – of money. The final part shows that Ricardo relied on the active management of paper money rather than on flows of bullion and commodities to produce international adjustment and guarantee the security of the monetary system.
Published to coincide with the 200th anniversary of the publication of On the Principles of Political Economy, and Taxation, this book will be of great interest to all historians of economic thought and scholars of monetary economics.
List of tables
Acknowledgements
Introduction
1. Why a book on Ricardo on money?
Revaluation
Rehabilitation
Completeness
Relevance
2. An evolution in Ricardo’s theory of money
The relation with the theory of value and distribution
Ricardo’s mature theory of money in brief
3. The content of the book: history, theory, policy
Part I. History
Part II. Theory
Part III. Policy
4. Two hundred years after
PART I History
1 The historical context
1.1 The English monetary system at the time of Ricardo
Currency
Banking
1.2 International monetary relations in Europe: London, Paris, Hamburg
1.3 From Hume to the Bullionist Controversy
David Hume and James Steuart
The Bullionist Controversy
A central question: the role of note-issuing in monetary disorder
1.4 The first round of the Bullionist Controversy (1797‒1803)
The search for analytical foundations
Thornton’s Paper Credit of Great Britain
Appendix 1: Ricardo on the bullion and foreign exchange markets
1. Ricardo contradicts Bosanquet on the rise of gold on the Continent
2. Ricardo contradicts Vansittart on the state of the exchange with Hamburg in 1760
2 Ricardo’s battles on currency and banks
2.1 Ricardo and the Bullion Controversy (1809‒1811)
The second round of the Bullionist Controversy
Ricardo’s positions
2.2 Ricardo and the resumption of convertibility (1816‒1823)
The third round of the Bullionist Controversy
Ricardo’s two plans
2.3 Conclusion: the legacy of Ricardo’s monetary battles
Appendix 2: Attacks and weapons
1. Attacks: critical opinions on Ricardo
2. Weapons: Ricardo’s contributions on money
PART II Theory
3 Money and the invariable standard
3.1 Some definitions
Commodities: exchangeable value, money price, absolute value
Money: measure of price, circulating medium, standard of money
The condition of coherence of the price system
3.2 Value of money, price of gold bullion, and the general price level
The legal and the current value of money
The purchasing power of money over all commodities except gold or over gold alone
The condition of conformity of money to the standard
A non-monetary cause of rise in the general price level? The question of taxation
3.3 The standard of money and the standard of value
The invariable standard of value: "a mean between the extremes"
The standard of money
A dilemma
3.4 Conclusion
Appendix 3: An aborted attempt at the non-neutrality of money in respect to relative prices
4 The two causes of change in the value of money
4.1 The direction of the causality between the quantity and the value of money
An alleged inconsistency or contradiction
The "analogy" with a gold mine
The effect of a monopoly in issuing money
4.2 Ricardo’s distinction between "a fall in the value of money" and "a depreciation of money"
From the Bullion Essays to Proposals and beyond
The definition and measure of depreciation
4.3 The Money–Standard Equation
Two channels of change in the value of money
Ricardo’s factual illustration
4.4 Conclusion
Appendix 4: Evidence on the Money–Standard Equation: The "Draft on Peel" (1821)
1. The context
2. Ricardo’s "Draft of a letter to a newspaper on the effects of Peel’s bill", December 1821 (V: 515‒21)
3. Ricardo’s letter to McCulloch of 3 January 1822
4. The pamphlet On Protection to Agriculture, April 1822
5 The adjustment to a change in the value of the standard
5.1 From an ambiguity in the Bullion Essays to a clarification in Principles
Criticising Bentham on the cause of the general rise in prices
From the mine to the mint
5.2 The extension of the theory of rent from land to mines
5.3 The specificity of gold bullion in respect to corn
The adjustment to a new land growing corn with a higher productivity
Two differences between gold bullion and corn
5.4 The adjustment in the gold-producing country: a new "distribution of capital"
A fall in the value of gold bullion
The closure of existing mines as a consequence of the discovery of a new one
A formalisation of the adjustment
A numerical example
5.5 The adjustment in the gold-importing country: minting
From the foreign mine to importation
From importation to the mint
5.6 The effect of an increased demand for bullion by the issuing bank
The case of the Bank of England from 1819 to 1821
The adjustment
5.7 Conclusion: The Money–Standard Equation and a real shock on the value of money
A change in the value of money, but no depreciation or appreciation
The timing of the adjustment
Symmetrical real shock versus asymmetrical monetary shock
Appendix 5: Taxes on gold
1. The case examined by Ricardo
2. Ricardo’s numerical example
3. Three questions
4. A generalisation
6 The depreciation of metallic money
6.1 Convertibility and adjustment in the market for bullion
The effect of the melting pot on the upper limit of variation in the market price of bullion
The effect of seignorage on the lower limit of variation in the market price of bullion
6.2 Price adjustment in the markets for other commodities than bullion
The effect of a change in the value of money on the competition of capitals
From the market price of bullion to the market prices of commodities
A bullion-price channel of transmission of a monetary shock
6.3 Debasement of the coin and depreciation of money
The effect of debasement on the market price of gold bullion
Debasement and "the principle of limitation of quantity"
6.4 The instability of the double standard
The variability of the relative market price of gold in silver and the alternating standard
The behaviour of the Bank of England and the prospective fall in the value of money
Appendix 6: A letter on the double standard of money
7 The regulation of the quantity of convertible notes by the standard
7.1 The Money–Standard Equation and the quantity of money
7.2 The adjustment of the value of money to an increase in the "wants of commerce"
The notion of wants of commerce
An endogenous adjustment
The superiority of paper money over coins
7.3 The adjustment to a discretionary increase in the convertible-note issue
"Forcing" Bank of England notes into circulation
The melting of circulating coins
The Penelope effect
7.4 A non-quantitative approach
7.5 Money without a standard
A double inconvertibility
The Money–Standard Equation and inconvertibility
7.6 Conclusion: the specificity of the market for gold bullion
Appendix 7: The effects of a change in the money supply: real balances, rate of interest and Say’s Law
1. The real-balance effect
2. The rate of interest and changes in commodity prices
3. Say’s Law
PART III Policy
8 The international adjustment to a monetary shock
8.1 Real par of exchange and bullion points
The legal par of exchange
The real par of exchange according to Steuart
The bullion points in Ricardo
The real par computed on gold bullion, not the purchasing power parity over commodities
The limits to the variations of the exchange rate
8.2 A two-stage international adjustment process
A double condition on the exchange rate
The first stage: the exportation of gold bullion
The second stage: the additional importation of commodities
"The natural trade of barter"
8.3 The redundancy of money as the sole cause of fall in the exchange rate
Real and nominal variations in the exchange
A matter of fact or of theory
8.4 Price-specie flow mechanism versus active management of the currency
8.5 The Ingot Plan and the gold-exchange standard
The reduction of the range of variation in the exchange rate
Domestic management of the note issue rather than international bullion flows
A prototype of the gold-exchange standard
Appendix 8: The boundaries constraining the exchange rate
1. The proportions in which the transfer cost of bullion and the depreciation of the note accounted for a fall in the exchange rate
2. The complications introduced by a difference in standard
9 Central banking and the euthanasia of metal currency
9.1 The public nature of paper money
Justice and security
The danger of "this great Leviathan, the Bank" for security
9.2 The Ingot Plan
The 1811 outline
The 1816 plan
A permanent plan
The unhappy fate of the Ingot Plan
9.3 The Plan for a national bank
The main provisions of the plan
The question of the independence of the national bank
The ingot principle again
9.4 The management of the note issue
A controversial question
Bank issues and the rate of interest
Avoiding an undue contraction of the note issue
9.5 Increasing the security of the monetary system
The ingot principle and the management principle
Stabilising the market price of the standard
Preventing the drain of the Bank’s metallic reserve
9.6 An application of Ricardo’s theory of money
Appendix 9: The Ingot Plan in perspective
Afterword
1. Results
2. The legacy of Ricardo’s theory of money for today
A contribution to the modern theory of Classical prices
A contribution to the modern approach to money
Appendix 10: Ricardo’s model of a monetary economy with a standard
1. Domestic relations
2. International adjustment
References
Name index
Subject index
