Afterword

Contrary to the widely shared opinion that Ricardo fared less well on monetary theory than in other fields and that he did not improve upon his early writings,1 I have aimed in this book at showing that there is a coherent theory of money in Ricardo, integrated in his theory of value and distribution, and for this reason to be found in his mature monetary writings (from Proposals in 1816 onwards) rather than in the Bullion Essays of 1809‒1811. The concept of standard of money is central in this theory and the adjustment of the market price of the standard (gold bullion) to the legal price of gold in coin (in the pre-1797 system) or in bullion (in Ricardo’s Ingot Plan) plays a pivotal role in the channel of transmission of the quantity of money to its value. Indeed, as seen in Chapter 7 above, the description of the adjustment of the market price to the legal price of gold was already present in the Bullion Essays, and it remained valid in subsequent writings. But it was with Proposals that Ricardo shifted his theoretical interest from a situation in which money had no standard – since the suspension in 1797 of the convertibility of the Bank of England note – to a monetary system with a standard.

The analytical distinction (made in Proposals) between two causes of change in the value of money, on the one hand a change in the value of the standard, on the other hand a change in the price of the standard – a distinction embodied in what I have called the Money–Standard Equation – was coupled by Ricardo with the theory of value and distribution contained in Principles – a theory that applied to the value of the standard but not to its price – to elaborate a coherent theory of money. Ricardo’s early understanding of the adjustment of the market price to the legal price of gold was thus introduced into a theoretical framework built in Proposals (for a money with a standard) and in Principles (for value and distribution), Ricardo being at his best with the consequences he derived in his writings and oral interventions between 1819 and 1823.

Ricardo did not ensure the coherence of his theory of money by submitting to the alleged “Ricardian vice” that concentrates on long-term positions and neglects short-term adjustments. On the contrary, a great part of this theory is devoted to the analysis of the adjustment of the domestic value of money, whether to a real change in the value of the standard (see Chapter 5 above) or to a monetary shock on metallic money (Chapter 6) or paper money (Chapter 7), and it also analyses the adjustment of the external value of money (the exchange rate) to a monetary shock (Chapter 8).

It may be useful to sum up the main results obtained in the book, before evoking the legacy of Ricardo’s theory of money for today.

1. Results

Appendix 10 below gathers the main equations constituting Ricardo’s model, which establishes results often at variance with what is affirmed in most of the literature that concentrates on the Bullion Essays. In the book I emphasise that Ricardo’s mature theory of money is founded on the distinction between three notions: the value of money (in terms of all commodities except the standard), the value of the standard (in terms of all other commodities), and the price of the standard (in terms of money). This distinction leads to the main result of the book, which may be summed-up in four propositions: (a) the value of money varies positively with the value of the standard and inversely with its price (the Money–Standard Equation); (b) a change in the quantity of money relatively to the “wants of commerce” affects the value of money in the opposite direction, and it does so indirectly, through its effect on the price of the standard in the same direction; (c) for a given value of the standard, the quantity of money is endogenously determined through variations in the price of the standard; and (d) consequently, Ricardo’s theory of money is not a quantity theory of money: the causal relation between the quantity of money and its value only applies to disequilibrium, not in the conformable state (when “money conforms to the standard”) where the causality is the other way round.

Detailed results are (with the corresponding chapter where they are established):

•  The value of money is defined by Ricardo, not as its purchasing power over the standard (gold bullion), but as its purchasing power over all commodities except the standard (Chapter 3).

•  The question of the invariable standard is not only an integral part of Ricardo’s theory of value and distribution but also of his theory of money (Chapter 3).

•  There is in Ricardo neither inconsistency nor contradiction between an alleged commodity-theory of money and an alleged quantity-theory of money but an integration of a non-quantitative theory of money in the theory of value and distribution (Chapters 4 and 7).

•  Changes in the value of money are not caused in the long run by changes in the value of the standard and in the short run by changes in the quantity of money, but always by the combination of the direct effect of changes in the value of the standard and of the indirect effect (through the market price of the standard) of changes in the quantity of money (Chapters 4 and 7).

•  A discretionary change in the quantity of money does not cause an opposite change in its value directly, as in the Quantity Theory of Money, but indirectly, through a change in the market price of the standard. The transmission channel from the quantity to the value of money is the market price of the standard (Chapters 4 and 7).

•  The discovery of a new gold mine does not lower permanently the value of metallic money because of an increased quantity of bullion produced but because of a fall in its cost of production (Chapter 5).

•  A discretionary increase in the issuing of notes is not analogous with an increase in the quantity of metallic money following the discovery of a new gold mine but with a debasement of the circulating coins (Chapters 5 and 6).

•  The effect of the debasement of the coins on the high price of gold bullion is another application of “the principle of limitation of quantity” according to which an excess quantity of money generates its depreciation (Chapter 6).

•  For Ricardo a monetary system with a double standard was not only unstable because of the variability in the relative price of gold in silver but also because it increased the possibility for the issuing bank of varying the value of money at will (Chapter 6).

•  In contrast with what happens under inconvertibility, the role of the export of bullion consequent upon an excess of convertible bank notes is only temporary in the adjustment, which eventually operates through a contraction of the note issue under the pressure on the metallic reserve of the bank (Penelope effect) (Chapter 7).

•  Convertibility both ways between money and its standard prevents the value of money from diverging permanently from the value of the standard. However, convertibility of the note into coin and discretion in its issue made the adjustment process harmful and insecure. Although improving convertibility, the Ingot Plan aimed at ensuring the conformity of money to the standard without having actually recourse to it (Chapters 7 and 9).

•  Because discretionary changes in the aggregate quantity of money only affect its value in disequilibrium and are corrected endogenously, Ricardo’s mature theory of money, as it is embodied in the Money–Standard Equation, is not a quantity theory of money. Modern attempts at introducing real-balance effects or at linking Ricardo’s alleged quantity theory of money and Say’s Law are therefore irrelevant (Chapter 7).

•  Contrary to the almost exclusive attention given to the Bullion Essays in the literature, Ricardo’s mature theory of money does not apply to a money without a standard (such as inconvertible notes). Its only use for this question is to show that such a money is not viable (Chapter 7).

•  The standard is neither a commodity like all others nor money: it has a unique character. As a commodity, gold bullion was produced in competitive conditions and its market price, in the gold-producing country, was regulated by its cost of production. In any country where it was used as the standard of money, its market price was regulated by a fixed legal price. This double regulation of the market price of the standard implies that it should be produced outside of the country in which it is used as the standard of money, the link being provided by the exchange rate (Chapters 5 and 7).

•  Ricardo did not deny the possibility of a real shock on the exchange rate, but he distinguished between a real shock, which could only affect the exchange rate within the (narrow) limits set by the cost of the international transfer of bullion, and a monetary shock, which affected the exchange rate through a change in the real par of exchange (Chapter 8).

•  The adjustment to a shock on the exchange rate is not through the domestic quantity of money, prices, and the balance of trade (the price-specie flow mechanism) but through the international transfer of bullion if the shock is real or the management of the note issue if the shock is monetary (Chapter 8).

•  When the cause of a fall in the exchange rate is monetary, the adjustment should not be left to the export of bullion, which forces the bank of issue to contract the quantity of notes only after a harmful delay, but it should result from a voluntary contraction of the issues by the bank, before arbitrage drains its metallic reserve (Chapter 8).

•  The Ingot Plan was not a technical device for economising on gold but a radical change in the monetary system which demonetised gold in domestic circulation and separated domestic and foreign payments (a gold-exchange standard) (Chapters 8 and 9).

•  There was continuity between the Ingot Plan and the Plan for a national bank on the two underlying principles of “a perfect currency” managed by a central bank: the ingot principle – convertibility of the note into bullion for foreign payments – and the management principle – varying the note issue inversely with the spread between the market price and the legal price of the standard (Chapter 9).

•  The usual reading key “rules versus discretion” does not apply to Ricardo’s “judicious management of the quantity” of notes: this quantity resulted endogenously from the fulfilment of the condition of conformity of money to the standard, that is, the equalisation of the market price of gold bullion with its legal price (Chapter 9).

•  The combination of the ingot principle and of the management principle not only aimed at stabilising the market price of the standard – hence eliminating the monetary cause of variation in the value of money – but also at increasing the security of the monetary system, by preventing an internal or external drain of the metallic reserve of the central bank (Chapter 9).

2. The legacy of Ricardo’s theory of money for today

A contribution to the modern theory of Classical prices

The publication in 1960 by Piero Sraffa of Production of Commodities by Means of Commodities showed that his masterly edition of Ricardo’s Works and Correspondence not only offered a reappraisal of the latter’s theory of value and distribution – providing an interpretation still hotly debated today in its own right – but also allowed the development of a modern theory of prices in the Classical tradition which constituted an alternative to the general-equilibrium approach grounded in the marginalist tradition. Leaving aside the sensitive question of whether Sraffian prices radically differ or not from neo-Walrasian prices, one may observe that both approaches face the same riddle: how to apply a “real” theory of the system of prices – that is, a theory that does not require money as a building block – to a monetary economy – that is, the economy of the “real world” in which commodities are not bartered against one another but traded against money. This so-called question of the integration of money in the theory of value has for long raised many difficulties in the general-equilibrium approach, and it cannot be avoided in the modern Classical one.

This question must all the more be faced because the Sraffa Papers, currently in a process of publication, do not leave any doubt about the fact that Sraffa viewed himself as part of an old tradition which considered that prices cannot be but money prices. In other words, although money is not among the determinants of the system of relative prices, it is nevertheless essential, in the sense that the only “real-world” economy to which this system applies is a monetary economy. However, such affirmation remains empty in the absence of a theory of the value of the circulating medium that allows deriving the money prices of the commodities from the system of their relative prices. To integrate Ricardo’s conception of money as a pure means of exchange into a Ricardo–Sraffa system of relative prices, one cannot rely, as many modern advocates of this theory of prices do, on Sraffa’s allusion to a causal relation between the money rate of interest and the rate of profit (Sraffa 1960: 33) – an allusion downplayed by Sraffa himself in his unpublished papers (see Deleplace 2014a).

To integrate money in the modern theory of Classical prices it seems appropriate to turn to Ricardo’s monetary theory. Indeed, Ricardo may be considered as the author who introduced the method which would be later adopted by all economists interested in the working of a market economy: start with a theory of the real exchange values of commodities, abstracting from money, and then, since the implementation of exchange faces difficulties (as already emphasised by Adam Smith with the problem of the double coincidence of wants), introduce a theory of money as a solution to these difficulties. Ricardo was the first to build a consistent theory of (real) relative prices and – as the present book has shown – to develop a theory of money coherent with it, including the adjustment of the quantity of money in disequilibrium. This was the great posthumous victory of Ricardo in that field.

Unfortunately, the understanding of Ricardo’s theory of money at his time and in the subsequent literature has been hindered by two obstacles, with which the integration of money in the modern theory of Classical prices is also confronted. One is the frequent confusion between money and the standard of money (gold bullion): since the standard is a commodity, this confusion leads to infer that a Classical approach is only consistent with a commodity-theory of money. In contrast, when money is carefully distinguished from its standard, it may be understood as a pure circulating medium designed in a way that makes it conform to the standard. The second obstacle is the specificity of the standard of money as a commodity being subject to a double determination of its price: by its difficulty of production (as all other competitively produced commodities) and by law (what makes it singular). The interpretation given here of Ricardo’s theory of the value of money (the Money–Standard Equation) shows that this double determination is not contradictory but implies that the standard of money (gold bullion) be produced outside of the system of production of commodities that determines the relative prices and the distribution of income. By clarifying the specificity of the price of gold bullion, this interpretation also contributes to the modern theory of Classical prices, since it shows the radical difference between Ricardo’s standard of money (exterior to the economic system) and Sraffa’s Standard Commodity (into which any given economic system may be transformed).

Ricardo’s theory of money, as it is here interpreted, allows deriving the natural prices (in money) of the commodities from: (a) the system of (real) relative prices, and (b) the value of money in the conformable state, determined by the value of the standard (for a given legal price of the standard when transformed into money). In disequilibrium (strictly defined by the inequality between the actual and the conformable quantities of money), the value of money changes inversely with its quantity – hence the misleading resemblance with the Quantity Theory of Money – and this change triggers an endogenous adjustment of the quantity of money which restores the conformable state. The money prices of commodities are therefore completely determined in and out of the conformable state. The theory of money is thus integrated in the Ricardo–Sraffa theory of relative prices and distribution, although money itself is outside of the system of commodities and the determination of its value is sui generis.2

Two tours de force were performed by Ricardo in his theory of money. First, the adjustment of the actual quantity of money to its conformable level only depends on arbitrage in the bullion market, not on any adjustment in all other markets. Indeed the money prices in these markets are affected by the change in the market price for gold bullion, but this is only a consequence of this latter change, which does not play any role in the adjustment of the quantity of money. Second and consequently, a policy rule may be designed to enforce the conformable quantity of money better than by arbitrage in the bullion market, without having to know this conformable level but simply by comparing the observed market price of the standard with its legal price and adapting the note issue accordingly.

At the end of the present enquiry into the theory of money in Ricardo, one is, however, obliged to recognise a blind spot in it, when it is applied to the convertible bank note – that is, for Ricardo, the “most perfect” currency. On the basis of the indications given in his writings, it is possible to demonstrate that the actual quantity of notes adjusts to its conformable level thanks to arbitrage in the bullion market or, preferably, to Ricardo’s policy rule. This adjustment is triggered by a variation in the market price of the standard (gold bullion) relative to its legal price. But this supposes that in the first place an inadequate quantity of money is reflected in such a variation. This assumption does not raise any difficulty for a metallic money: its excess can only be caused by a debasement of the coin (not by an increase in the production of bullion), which may be ascertained by a physical operation: weighing and assaying. When the trader in bullion fixes the price at which he agrees to sell it against debased coins, he knows how much of standard bullion the melting pot would extract from them, and how many undebased coins he could alternatively obtain by bringing his bullion to the mint. He can raise the selling price of his bullion accordingly, and the buyer is forced to pay more than the legal price in a proportion equal to the loss in metal he would suffer if he had his coins melted instead of using them to buy bullion in the market. The conditions of arbitrage thus explain that an excess quantity of money causes a rise in the market price of the standard.

There is nothing of the kind for convertible notes. No physical test allows measuring how much their quantity issued departs from its conformable level. In the contrary, convertibility into coins “fresh from the mint” (undebased) or into bullion (in Ricardo’s Ingot Plan) testifies to the fact that the note fully “represents” the standard – that is, is neither depreciated nor appreciated. Convertibility of the currency into the standard, which in the case of metallic money is checked by the melting pot and provides the test to measure how much the currency is in excess, conceals the inadequacy of the quantity in the case of notes, by proclaiming that their value is equal to that of the legal weight of the standard that defines the monetary unit. How can the trader in bullion translate the excess or deficiency of the quantity of convertible notes into a divergence of the market price of his commodity from the legal price, when he has no physical way to know this inadequacy? To the best of my knowledge there is no indication in Ricardo about how to avoid this black box. In other words, the convertibility of paper money into a physical object (gold bullion) is the condition for the adjustment of the actual quantity of money to its conformable level, but it conceals what triggers this adjustment process. This limitation of Ricardo’s theory of money reflects the (actual) mystery of the nature of a paper money convertible into a physical object (gold bullion).

This observation leads to another possible legacy of this theory for today: its contribution to a modern approach to money.

A contribution to a modern approach to money

It cannot be doubted that Ricardo’s theory of prices and distribution reflected his general conception of society. And here one might be surprised at the gap between the market-oriented approach generally ascribed to him and his defence of a monetary system in which a central bank manages the currency in a way which practically deprives private arbitrage in the market for the standard of any role. There is, however, no contradiction.

Ricardo’s tour de force was to define the value of money as its purchasing power over all commodities except the standard and to isolate the source of variability in this value that had a monetary origin (an inappropriate quantity of money issued) without having to consider the market prices of the commodities circulated with money. The clue was an explanation of the variations in the value of money which relied exclusively on the combination of the variations in the value and in the price of the standard (what I called the Money–Standard Equation). The variability in the value of money that had a monetary origin was exclusively located in the divergence between the market price of the standard as commodity (bullion) and its legal price when converted into money (coin or, in Ricardo’s Ingot Plan, note convertible into bullion). The market price of the standard being regulated by the legal price through arbitrage permitted by convertibility (in the pre-1797 system) or thanks to Ricardo’s policy rule (in his two plans), it was independent of the determination of the market prices of all other commodities (the so-called mechanism of gravitation).

This was not only important from a theoretical point of view but also from a political and practical one: an appropriate design of the monetary system allowed the monetary authorities to eliminate the variability in the value of money that had a monetary origin, by making the market price of the standard conform to its legal price. The intervention of a central authority – a central bank – to regulate the market price of the standard and only this price ensured the existence of “a perfect currency” which made any central intervention in all other markets unnecessary. Ricardo’s centralised monetary system was thus the condition of the absence of central intervention in the markets for commodities. This conclusion that, even endowed with a commodity standard, a monetary system had to be centralised, is already a lesson for today. There is another one.

During the many years I spent on this book, I often heard the same question: intellectual archaeology is fine, but what is the use of inquiring about the theory of a money anchored to gold, something only few people still advocate today? And this enquiry may not even be useful to them: modern advocates of such system usually develop a laissez-faire approach to money, which is at odds with Ricardo’s contention that stabilising the value of money requires a legal price of the standard – instead of the value of money being market-determined – and a central bank managing the quantity of money on the basis of the spread between the market and the legal prices of the standard – instead of the note issue being left to free banking. It may thus seem that any attempt at linking Ricardo’s theory of money with modern inquiries into monetary questions is doomed to failure.

One may, however, ask the question the other way round. The main lesson of Ricardo’s mature theory of money is that a monetary system cannot be stable if it is deprived of a standard. Of course, the variability of the value of the standard generates variability in the value of money, but this is the price to pay for avoiding a greater instability in the value of money, due to a poorly designed monetary system. Ricardo showed with the Ingot Plan that the value of notes issued through monetisation of capital (discounting of commercial bills) could be stabilised under the condition of being anchored to a standard and managed properly. If this analysis is considered as valid, the next step is to inquire into the standard that should be designed to obtain the same result in a modern economy. In the historical conditions of the time, Ricardo considered a metallic standard. While it had been recognised for long – probably the sixteenth century – that the legal price of the standard in coin should not be arbitrarily changed by the State, the Bullionist Controversy showed that debates were still raging about the conditions under which the market price of the standard could be stabilised so as to eliminate the causes of variability in the value of money that had a monetary origin. The merit of Ricardo was to clarify this issue by showing that convertibility between one circulating medium (the note) and the other (the coin) was not appropriate: “a sound state of the currency” required the euthanasia of metal currency and the implementation of the ingot principle – convertibility both ways between the sole currency (the note) and the standard itself (bullion) – coupled with the management principle – expansion or contraction of the note issue according to the market price of the standard being below or above its legal price.

These conditions for “a perfect currency” in no way require the standard to be metallic: any marketable asset that is legally convertible into money and into which money is legally convertible at a fixed price may play the same role, provided, as recalled above, that it does not belong to the system of production of commodities. Even more: the above-mentioned mystery of a paper money convertible into a physical object (gold bullion) might be lifted if convertibility were into a financial asset (the value of which is determined by the anticipation of future returns) instead of a physical commodity. Both conditions – being outside the system of production of commodities and being a financial asset – would be fulfilled by a public bond purchased and sold for money by a central bank at a fixed price and traded on a secondary market – a situation not far from that of our modern economies in times of deflationary crisis and non-conventional central bank policy. When, for example, the European Central Bank announced that it was prepared to purchase any amount of the sovereign debt issued by a given State, as long as the market interest rate on that debt stayed above a predetermined (although undisclosed) level – in other words as long as the market price of that debt stayed below a predetermined level – it did the same as Ricardo’s central bank, which was to enlarge its note issue as long as the market price of gold bullion fell below its legal price. There are of course important differences – the benchmark interest rate remains secret and this non-conventional policy is supposed to be abandoned sooner or later – but it is a step in Ricardo’s direction.

The substitution of a public-debt standard for the gold-bullion standard would marry the ingot principle of the currency adapted from Proposals with open-market operations suggested in the Plan for a National Bank, so that the note issue would vary according to the spread between the rate of interest on the secondary market for public debt and the legal rate of interest on this debt. The analytical condition for such an approach to central banking is of course to formalise the link between the quantity of central bank money issued and the price of public securities, a question at the heart of modern monetary theory.

Appendix 10: Ricardo’s model of a monetary economy with a standard

The appendix gathers the main equations constituting Ricardo’s model, with their numbers as they appear in Chapters 3 to 9, so as to allow the reader going to the relevant chapter for the explanation.

1. Domestic relations

Notations:

Image and Image absolute level and rate of change in the value of one pound sterling in terms of all commodities except gold bullion.

Image and Image absolute level and rate of change in the value of an ounce of gold bullion in terms of all other commodities.

Image and Image absolute level (in £) and rate of change in the market price of an ounce of gold bullion.

Image legal price (in £) of an ounce of gold in coin (pre-1797 system).

Image legal price (in £) of an ounce of gold bullion (Ingot Plan).

Image and Image absolute level and rate of change in the conformable quantity of money, according to the “wants of commerce”.

Image rate of change in the actual quantity of money.

Y and Image absolute level and rate of change of the aggregate value of commodities to be circulated.

k: ratio of the value of the quantity of circulating money to the aggregate value of commodities.

Image minting cost of bullion into coin, in percentage.

Image melting cost of coin into bullion, in percentage.

b: cost charged by the Bank of England when it purchases gold bullion against notes (in the Ingot Plan), in percentage.

Equations:

Condition of coherence of the price system:

Image

(3.5)

Pre-1797 monetary system (mint and passive bank of issue)

Conformable state

Condition of conformity of money to the standard:

Image

(3.8)

which may be rewritten as:

Image

(3.9)

Conformable quantity of money:

Image

(7.6)

Disequilibrium: definition of depreciation (or, if negative, appreciation)

Image

(4.1)

which may be rewritten as:

Image

(4.2)

Dynamics: the Money–Standard Equation:

Image

(4.8)

Starting from Image, any variation Image in the actual quantity of money and / or Image in the conformable quantity of money cause a variation Image in the market price of gold bullion given by:

Image

(7.3)

hence:

Image

(7.4)

Condition of permanence of conformable state:

Image

(7.7)

hence:

Image

(7.8)

Dynamics in disequilibrium:

Image

(7.10)

Endogenous adjustment of M:

When Image falls below Image– hence Image rises above Image – notes are converted into coins and coins melted into bullion, and the Penelope effect forces the bank to contract its issues so that M is adjusted downwards toImage. When Image rises above Image – hence Image falls below Image – coining of bullion and / or discounting of bills for notes adjust M upwards to Image. Convertibility both ways limits the variations of Image to:

Image

(6.1)

Ingot Plan (active bank of issue)

The legal price Image of gold bullion substitutes for the legal price Image of gold in coin. The condition of conformity of money to the standard is now:

Image

(9.1)

which may be rewritten as:

Image

(9.2)

Conformable quantity of money:

Image

(9.3)

The Money–Standard Equation (4.8) and equations (7.3) to (7.5) and (7.7) to (7.10) apply. However, in contrast with the pre-1797 monetary system, the management principle varying the quantity of notes inversely with the sign of the spread between PG and Image adjusts ΔM / M before convertibility is implemented, so that:

Image

(9.4)

2. International adjustment

Notations:

Image natural price (in pesos) of an ounce of bullion in the gold-producing country.

Image legal price (in £) of an ounce of gold in coin in England (pre-1797 system)

Imagelegal price (in £) of an ounce of gold bullion in England (Ingot Plan).

Image market price (in £) of an ounce of gold bullion in England.

Image legal price (in French francs) of an ounce of gold in coin in France.

Image exchange rate of £1 against pesos.

Image exchange rate of £1 against French francs.

Image legal par of exchange of £1 against French francs (pre-1797 system).

Image legal par of exchange of £1 against French francs (Ingot Plan).

r: natural rate of profit in England during the time capital is invested in the importation and sale of bullion, in percentage.

sGL, sGP: minting cost in London and Paris respectively, in percentage.

Image melting cost in London and Paris respectively, in percentage.

Image cost charged by the Bank of England when it purchases gold bullion against notes, in percentage (in the Ingot Plan).

Image cost of transfer of bullion from the gold-producing country to England, in percentage.

Image cost of importation of gold bullion to London from Paris, in percentage.

Image cost of exportation of gold bullion from London to Paris, in percentage.

Equations:

Exchange rate with the gold-producing country:

Image

(5.9)

The level of the exchange rate Image depends on the natural price of gold bullion in the gold-producing country and on its market price in England (determined above), for a given rate of profit in England.

Exchange rate with France:

Pre-1797 monetary system

Image

(8.1)

Image

(8.10)

Ingot Plan

Image

(8.13)

Image

(8.14)

In both cases, the variations in the exchange rate Image are constrained by boundaries depending on the characteristics of the monetary system in England and in France, and on the cost of transfer of gold bullion between the two countries. The margin of variation is smaller in the Ingot Plan than in the pre-1797 English monetary system.

Notes

1  This opinion is even shared by some of Ricardo’s admirers. For example, the far-reaching albeit concise introduction written by Donald Winch in 1973 for the Everyman’s Library edition of Principles illustrates how a most respectful evaluation of Ricardo may exempt money from the “intellectual aesthetics” (Winch 1973: xviii) embodied in this book. Emphasising that “the skill and tenacity with which he [Ricardo] pursued the task of constructing a deductive model capable of generating practical solutions excites admiration”, (ibid) Winch nevertheless contends that the “three monetary pamphlets” which Ricardo published before writing Principles “were not markedly above the level of several other contributions to a distinguished debate” and concludes: “Indeed, as far as monetary analysis is concerned, Ricardo’s stock has tended to decline rather than rise with the years” (ibid: vii).

2  Some scholars have recently advocated that the Ricardo–Sraffa tradition was not the only one inside the Classical theory of prices, and that another line of enquiry (mostly descending from Torrens and Marx) could be developed (see for example Benetti and Cartelier 1999, Benetti et al. 2015). In this approach, the money price of a commodity is determined in the same way in equilibrium and disequilibrium, namely as the ratio of the purchasing power (in money) spent on this commodity to the quantity of the latter brought to market (“the Cantillon Rule”, after the eighteenth-century author who was the first to formulate it). The question may be raised whether Ricardo’s theory of money, as it is here interpreted, may also fit this other Classical line of enquiry or is restricted to the Ricardo–Sraffa tradition.