11 Pages

Ricardo's standard of value: a new proposal

Ricardo’s quest for an invariable standard of value aims at identifying the origin of a move in relative prices by looking at the evolution of the conditions of production. When, after a change of techniques, the exchange ratio between corn and iron decreases from 2:1 to 1:1, the cause of the variation may be either a deterioration in agricultural production (less fertile lands are cultivated) or a technical improvement in metallurgy, or any combination of these motives. Though the change in relative prices is the same in all cases, the economic consequences of these phenomena differ drastically. That is why Ricardo asked for a measure of absolute values:

No one can doubt that it would be a great desideratum in Political Economy to have such a measure of absolute value in order to enable us to know, when commodities altered in exchangeable value, in which the alteration in value had taken place.