ABSTRACT
As observed by Schmitt in his introduction to the Italian translation of David Ricardo’s monetary writings, the rigour exercised by the Anglo-Portuguese economist in his monetary analysis is already evident in his early ‘monetarist’ theses. Ricardo’s rigour enabled him to avoid the confusions which so many supporters of the quantity theory of money would later fall into. In particular, since his paper on the high price of bullion (Ricardo 1810), Ricardo clearly distinguished between monetary creation and capital formation. As Marx subsequently confirmed, what is created by banks and lent to the economy is a sum of nominal money and not of capital. ‘When the credit system is developed, so that money is concentrated in the hands of the banks, it is they who advance it, at least nominally. This advance is only related to the money in circulation. It is an advance of circulation, not an advance of the capital it circulates’ (Marx 1981: 664). The increase in the ‘quantity’ of money issued by the Bank of England leads to a rise in the prices of currently produced goods and services and not to a rise in the value of income or capital. ‘But however abundant may be the quantity of money or of bank-notes; though it may increase the nominal prices of commodities; though it may distribute the productive capital in different proportions; though the Bank, by increasing the quantity of their notes, may enable A to carry on part of the business formerly engrossed by B and C, nothing will be added to the real revenue and wealth of the country’ (Ricardo 1951, Vol. III: 93). If we abstract from the physical support used to represent it, money as such has no intrinsic value, but as soon as it is created it derives a positive value from the real goods it is associated with. Thus, if a new emission of money were added to that already associated with current output, the result would be a nominal increase of the monetary units ‘vehiculating’ output. ‘If banks create new money, the excess will immediately contribute with pre-existing money to convey the same product to final consumers’ (Schmitt 1985: 18; our translation).
