Front Page Titles (by Subject) IV. Ricardo\'s Position on the Gold Standard - Studies in the Theory of International Trade
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IV. Ricardo's Position on the Gold Standard - Jacob Viner, Studies in the Theory of International Trade 
Studies in the Theory of International Trade (New York: Harper and Brothers, 1965).
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IV. Ricardo's Position on the Gold Standard
Although Ricardo believed that stability of its purchasing power was the criterion for an ideal standard of value, the effect of the suspension of cash payments on the purchasing power of the pound received no emphasis in his appraisal of the consequences of the suspension. In the first place, he thought the measurement of general purchasing power impossible.1 Secondly, he attached great importance, on ethical grounds, to the maintenance of contractual obligations, and regarded it as vital that creditors should be enabled to collect, upon the maturity of their claims, the amount of gold specified by or contemplated by the contractors. He regarded it as unjust to withhold from a creditor the benefit of any rise in the purchasing power of his monetary claim as long as he was obliged to assume the risk of any fall in its purchasing power.2
It is a mistake to suppose, however, that Ricardo assumed or believed that gold always maintained a constant purchasing power, and that a premium on gold over paper always meant that paper had fallen in value and never meant that gold had risen in value, views frequently attributed to him by anti-bullionists and apparently ascribed to him by Silberling in the following passage: “Ricardo assumed that gold was still effective as a legal standard and could never itself rise in price in terms of paper. It was always paper that fell, not gold ... that rose.” 3 Ricardo never denied that it was possible for the value of gold to fluctuate, and claimed for it only that it was more stable in value than any other commodity:
A measure of value should itself be invariable; but this is not the case with either gold or silver, they being subject to fluctuations as well as other commodities. Experience has indeed taught us, that though the variations in the value of gold and silver may be considerable, on a comparison of distant periods, yet, for short spaces of time, their value is tolerably fixed. It is this property, among other excellencies, which fits them better than any other commodity for the uses of money.4
Ricardo complained, in fact, that while all his argument rested on the fluctuations in the price of gold, his opponents insisted on raising objections based on the fluctuations in its value. Although he was justifiably skeptical of it, he did not deny that an increase in the value of gold had occurred during the war; he claimed only that it was irrelevant to the question of whether depreciation of the paper currency had occurred.5
The violent currency and price fluctuations which followed the termination of hostilities led Ricardo later to admit that gold and silver were more variable in their value even in short periods of time than had generally been recognized. He still insisted, however, that the variations in the value of gold were irrelevant to the bullionist case, and that in spite of these variations gold and silver still provided the most stable standard of value available.6 It was apparently Ricardo's position that since gold and silver were in general more stable in value than an inconvertible paper currency would be, in case of departure from a metallic standard the paper currency should ordinarily be so regulated as to give to it the value which a metallic currency would have had under like circumstances, even if this should occasionally result in a greater instability of the value of the currency than would have prevailed if the paper currency had not been so regulated.
Malthus, in the same spirit, maintained that even if gold had risen in its world value during the Restriction, as some critics of the Bullion Report had claimed, it would nevertheless be desirable to restore the paper currency to parity with gold.7 Although sufficiently loyal to the metallic standard, John Stuart Mill refused to go so far, though his refusal, given his denial that the circumstances which would justify this heresy had ever existed, was rather academic:
... Mr. Blake is of opinion, that instead of causing a variation, it [the Bank Restriction] prevented that which would necessarily have taken place, if the currency had continued on a level with its nominal standard. We ourselves, if we could believe the Bank Restriction to have had this effect, should be among the warmest of its defenders and supporters.8
Cf. Proposals for an economical and secure currency , Works, p. 400.
Cf. Reply to Mr. Bosanquet's observations , Works, p. 326; Proposals for an economical and secure currency , Works, p. 403.
“Financial and monetary policy,” Quarterly journal of economics, XXXVIII, 424.
High price of bullion, Works, p. 270, note.
Cf. Ricardo to Horner, Feb. 5, 1810, Minor papers on currency, p. 40;Ricardo to McCulloch, March 25, 1823, Letters of Ricardo to McCulloch, p.146. Ricardo thought that “whether in point of fact gold really rose or paper really fell, there is no criterion by which this can positively be ascertained.” (Ibid) Cf. also Hansard, Parliamentary debates, new series, VII (June 12, 1822), 947.
“This admission only proves that gold and silver are not so good a standard as they have been hitherto supposed,—that they are themselves subject to greater variations than it is desirable a standard should be subject to. They are, however, the best with which we are acquainted.” (Proposals for an economical and secure currency , Works, p. 402.)
“Review of the controversy respecting the high price of bullion,” Edinburgh review, XVIII (1811), 451. Cf. Substance of two speeches of Henry Thornton, Esq., 1811, p. 72: “It was said that gold itself had risen; but even if it had, gold being the standard, we were bound to hold to it; we had held to it in the general fall, and we ought to abide by it in its general rise also.”
Review of Blake's Observations, 1823, Westminster review, II (1824), 47. Blake, in 1823, had recanted some of his previously published views, and now claimed that it had been gold which had risen in value, and not paper which had fallen. (Observations on the effects produced by the expenditure of government, 1823, pp. 17, 79.) As Mathias Attwood pointed out (Letter to Lord Hamilton, 1823, pp. 68–69), Blake was hopelessly confused. Blake insisted that gold had risen in value and that paper had not fallen, although he conceded that there had been a rise in commodity prices in terms of paper, and that this rise was greater than the rise of gold in terms of paper.