As the title and page length indicate, this book provides an exhaustive reappraisal of David Ricardo’s theory of money. It challenges the orthodox view that Ricardo proposed a quantity theory of money by focusing on his ‘mature’ writings on money in the period from 1819 to 1823 when the policy debate in Britain turned to the resumption of cash payments by the Bank of England. An underlying theme of the book is that Ricardo’s monetary thought, first developed in his early writings from 1809 to 1811 when the bullionist debates were at their hottest, was materially affected by his theory of value and distribution worked out in the intervening period and published in the Principles in 1817 with a third edition in 1821. A large part of the book is concerned with showing how Ricardo’s mature theory of money is consistent with, and was elaborated by, his theory of value and distribution. Part I of the book, consisting of chapters 1 and 2, provides a useful historical context of the English monetary system and the long-running bullionist debates of the first two decades of the nineteenth century as well as a summary of Ricardo’s contributions to these debates. The main argument of this long book is in part II, comprising chapters 3 to 7, concerned with the formation of Ricardo’s mature theory of money. Part III, consisting of chapters 8 and 9, deals with Ricardo’s position on central bank management and the conduct of monetary policy. An Afterword provides a summary of the findings of the study and considers its implications for Ricardo’s legacy to contemporary theory.
The central argument of the book is that in his mature writings on money, Ricardo formulated a theory exclusively for a monetary system like Britain’s after 1821 in which gold is the commodity standard, whereby monetary forces, including central bank policy, is conceived to causally effect activity and the price level through a direct arbitrage-based transmission process to the money price of gold. Whilst how this transmission process was seen by Ricardo to work is not altogether compelling to this reader, Deleplace contends that it shows Ricardo was not a quantity theorist, as is nearly universally judged in the history of thought literature.
The argument starts in chapter 3 by showing how Ricardo distinguished between the depreciation of the currency by reference to the market price of gold in relation to its legal mint price and the ‘value of money’ as measured by the purchasing power of money over commodities in general other than gold as the monetary standard. A key contention is that whereas in his early 1809 to 1811 writings, Ricardo focused on “the difference produced by inconvertibility between the value of paper money and the value of gold,” in his mature writings, it shifted to “conditions under which the value of convertible paper money would conform to the value of gold” (p. 113; Deleplace’s emphasis).
Chapter 4 develops on this distinction to propose that Ricardo identified two separate causes for a change in the value of money: (1) a change in the value of the gold standard and (2) a change in the market price of gold in relation to its legal mint price. This interpretation is captured by what Deleplace calls a “Money-Standard Equation,” measuring the rate of change in the value of gold (as the monetary standard) minus the rate of change in its market price over some specified period. In chapter 5 consideration is then given to Ricardo’s conception of monetary adjustment associated with a change in the value of the gold standard by the discovery of a more productive gold mine in which the market price eventually gravitates towards the new natural value of gold as determined by its lower cost of production on the new least-productive mine. The key point contended is that Ricardo believed that there would be a decline in the value of gold relative to all other commodities because of the change in its conditions of production—corresponding to higher gold money prices—with no permanent effect on the market price of gold. Having considered Ricardo’s view of the effect on the “value of money” of a change in the value of the gold standard, chapter 6 is concerned with the effect of a change in the market price of gold. The main contention of Deleplace in this chapter is that Ricardo maintained that monetary forces that induced a depreciation of the currency increased the market price of gold through which the money prices of all commodities other than gold increased proportionately by a process of arbitrage apparently consistent with establishing the system of relative gold prices corresponding to uniformity in net profit rates. This contention, though, seems questionable since this is a long-run process being applied to short-run monetary influences.
It is only in chapter 7 that Deleplace’s interpretation of Ricardo’s theory of money comes together in a clear light. At the center of this interpretation is the notion well shown by Roy Green (Reference Green1992, pp. 14–15) that in the classical approach, as followed by Ricardo, in a gold- (or silver-) based monetary system with the value of the commodity standard determined along with the natural prices of all other commodities by real forces, causally the quantity of money in circulation is endogenously determined in the long run by prices for given monetary transactions (or by gold- or silver-valued nominal income). This means that in a gold-based monetary system, it is possible only to propose that the quantity of money can be exogenously influenced or controlled by the central bank consistent with a quantity theory of money in the short run, when prices deviate from their natural values and there is non-uniformity in rates if net profit. But Deleplace denies that Ricardo proposed such a quantity theory by essentially arguing he possessed an endogenous monetary adjustment process in the short as well as in the long run. Hence, if the Bank of England expanded its banknote issues so that the quantity of money increases beyond its “comformable level” at which the market price of gold is equal to the legal mint price, the currency depreciates and so does the value of money (as measured by the Money-Standard Equation), as the gold money prices of all commodities other than gold rise through a direct arbitrage process. Once the depreciation covered the cost of coining and exporting the gold, there would be a rundown in Bank of England bullion reserves, initially through an external drain and then by a higher internal demand for coins in exchange for banknotes, which would require the bank to buy bullion at unprofitably high prices to restore reserves and, thereby, cause it to eventually contract its issues. This endogenous process, referred to as Ricardo’s “principle of limitation of quantity,” operates only “in disequilibrium” when the “the value of money varies inversely with its quantity” (pp. 264–265). Since, in a fiat-based monetary system without gold convertibility, this principle cannot operate, Deleplace concludes that Ricardo’s mature monetary theory has little application to an inconvertible currency other than to show that it “is neither self-adjusting nor practicable … something which is not regretted since for Ricardo a money without a standard was not viable” (p. 270).
The policy implications of Ricardo’s mature theory discussed in chapter 8 are, not surprisingly, that the central bank should conduct monetary policy to ensure the market price of gold equates to its mint price in response to shocks, whether monetary or non-monetary. It implies little scope for discretionary policy. Based on Ricardo’s belief that usually the external balance is the consequence of the value of the currency, then it too rests on the same Bank of England policy; though Delaplace argues that in absence of a quantity theory, the mature Ricardo does not subscribe to the price-specie-flow mechanism. To finish, chapter 9 examines Ricardo’s Ingot Plan and proposal for a National Bank toward achievement of a perfect system of currency.
Whilst this book provides some interesting analysis of Ricardo’s mature monetary contributions from a fresh perspective, the overall argument is not well organized. Much of the book consists of tortuous analysis, sometimes repetitive, to establish point by point its alternative interpretation of Ricardo’s monetary theory. In reading it, one sometimes feels as if being taken on a long and winding expedition through the author’s own trails of Ricardo discovery. The study certainly shows in various ways how Ricardo’s theory of value and distribution in the Principles caused him to better clarify and elaborate aspects of his mature monetary thought, especially regarding the role of gold as a standard, but in my view it reinforces rather than much alters the monetary theory he articulated in his earlier 1809 to 1811 writings. In this regard I did not find the central argument of the book convincing, largely because it dismisses the short run as important in consideration of Ricardo’s monetary analysis. It is evident in Deleplace’s interpretation that “in disequilibrium”—which in classical economics can only be a short-run position—the Bank of England has an exogenous influence over the quantity of money through its discount policy, which can affect monetary conditions for a significant period of time corresponding to fluctuations in activity and in the general (gold) price level. Hence, in the short run, when demand and supply conditions for commodities are conceived to determine market (relative) prices in relation to their natural prices, Ricardo adopts a quantity theory of money in a gold standard monetary system. Only by denying “disequilibrium” can Deleplace deny this. We are also left with Ricardo’s quantity theory of money for an inconvertible fiat money system applicable to both the long as well as the short run.
This brings us to Deleplace’s contention that the main lesson of Ricardo’s mature monetary theory “is that a monetary system cannot be stable if it is deprived of a standard” (p. 388). As the experience of the twentieth century clearly shows, a gold-based monetary system might serve to better maintain price stability compatible with social stability under certain institutional conditions (in particular, in which workers have little wage bargaining power), but compared with a fiat-based system it is a major handicap to achieve the policy objectives of economic stability, growth, and low unemployment. On the legacy of Ricardo’s mature monetary theory for modern classical economics, Deleplace’s views are curious. On the one hand, he rightly refers to Ricardo’s conception of a system of relative money prices measured by reference to a gold standard, which can be meaningfully represented in Piero Sraffa’s Production of Commodities (1960) system by selecting gold (as a non-basic commodity) to be the numeraire for the determination of relative prices and distribution. But on the other hand, he fails to appreciate that Sraffa’s (Reference Sraffa1960, p. 33) proposition (the author is very wrong in referring to it as an “allusion,” as there are no allusions in this work) of taking the money rate of interest as an exogenous variable, which causally governs the normal rate of profit to solve the system, opens the possibility of formulating a monetary theory in which money neutrality can be truly overcome so that monetary forces are conceived to exert a permanent influence on real economic variables (Pivetti Reference Pivetti1991, pp. 10–46). Toward the latter, Ricardo’s monetary theory has little to offer.
A final observation is that if Deleplace’s interpretation is accepted, then rather than challenging the opinion that Ricardo’s monetary theory is of less contemporary relevance than that of Henry Thornton and other classical writers, it instead reinforces the view. After all, according to Deleplace’s interpretation, Ricardo provides few insights into the role of the money rate of interest and how a central bank conducts monetary policy to influence credit conditions as well as how it can influence spending and activity in a capitalist economy.
This book remains a significant contribution to debate about Ricardo’s monetary theory and is recommended to those who have a strong interest in Ricardo and the classical economists.
