5.: ricardo to mill3[Reply to 4—Answered by 6] - David Ricardo, The Works and Correspondence of David Ricardo, Vol. 6 Letters 1810-1815 
The Works and Correspondence of David Ricardo, ed. Piero Sraffa with the Collaboration of M.H. Dobb (Indianapolis: Liberty Fund, 2005). Vol. 6 Letters 1810-1815.
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First published by Cambridge University Press in 1951. Copyright 1951, 1952, 1955, 1973 by the Royal Economic Society. This edition of The Works and Correspondence of David Ricardo is published by Liberty Fund, Inc., under license from the Royal Economic Society.
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ricardo to mill
[Reply to 4—Answered by 6]
My dear Sir
I have read rather more than half of the MS which you sent to me with which I have been very much pleased. As far as I am able to judge it contains some very able and just views of the subject on which it treats, which I should be sorry should be wholly lost to the public; but at the same time I am of opinion that it contains some radical defects which will prevent it, as a whole, from effecting much good without considerable alterations. In giving my opinion I hope you will consider me as feeling all becoming diffidence when it is opposed by so ingenious and profound an author, but every man must judge with the portion of understanding which is allotted to him. First, then, the author does not appear to have been aware how effectually a paper circulation is, in the sound state of a currency, kept within due bounds by the value of the precious metals;—on the contrary he argues as if he thought it admitted of indefinite increase till at last it would become so enormous as to produce some great public catastrophe. This view is not warranted by any experience of the past, nor does any just examination of the science render such an extension of a paper circulation whilst convertible into specie either probable or possible. From my knowledge of your sentiments I have not the slightest doubt of your full acquiescence in this opinion. Secondly, the author has not taken any notice, as far as I have read, of the effects which would follow from an unrestrained issue of paper on our foreign relations; an effect highly important to be considered. Thirdly; Much of his argument is built on the assumption that an increase of the circulating medium though attended with the effect of depreciating the value of the currency, is also attended, (provided it be introduced through commercial channels,) with an increase of capital and commodities, and is so far beneficial;—he has supposed that money calls goods into existence which but for that money would not have been produced.—This opinion is advanced in many parts of his work, and was to me of great difficulty, as he had not advanced any reasons for entertaining it. At length however just before the place where I have left off I found a section or chapter devoted to that purpose, and after giving it my most serious attention I confess I should come to quite an opposite conclusion. As paper money is generally introduced for commercial purposes he is of opinion that it is almost always attended with the advantages which he had before ascribed to the proper introduction of metallic money. As much of the revenue of a country consists in a fixed money rent he supposes an unwillingness in those who receive it to save or rather to expend it on those objects which shall cause a future increase of revenue. Now as all the money introduced by commercial means would be so expended he considers the same beneficial effects would follow as if those with monied incomes had thus beneficially employed their rents and annuities.
The increase of money in my opinion can have no other effect than raising the prices of commodities. By such means some members of the community are enriched at the expence of others; there is a mere transfer of property, but no creation. Whether those who are enriched will employ their additional income more economically or more advantageously than those who before possessed it, must be matter of speculation only. My opinion however is that by no class are greater savings made than by those who are in possession of fixed monied rents and annuities. As far as they have come under my observation, and I have seen a good deal of monied men, they are amongst the most accumulating of the community.
There appears to me only one way in which any addition would be made to the Capital of a country in consequence of an addition of money; it would be this. Till the wages of labour had found their new level with the altered value of money,—the situation of the labourer would be relatively worse; he would produce more relatively to that which he consumed, or rather he would be obliged to consume less. The manufacturer would be enabled to employ more labourers as he would receive an additional price for his commodities; he might therefore add to his real capital till the rise in the wages of labour placed him in his proper sphere. In this interval some trifling addition would have been made to the Capital of the community.—
Fourthly the author supposes that the issues of Bankers are and may be regulated by the proportion of their deposits, —but this is clearly an erroneous opinion. A banker may issue 300,000 on a deposit of 100,000 perhaps safely; but it does not therefore follow that with a deposit of a million he might safely issue 3 millions.
To what I have already observed relatively to the effects of an increase of money,—I may add that the importation of money by commercial means would not only not be attended with an increase of commodities, but with an actual diminution. Money or the metal from which money is made could not be imported unless from the increased production of the mines, the value of that metal had generally fallen in the world which would force an increased use for it. Now in the state of money gold (or silver) is not productive to us nor does it augment our riches,—but to obtain this unproductive commodity we should in return export commodities which may be considered as really effective capital. Not only would individuals be injured by the greater abundance of gold but all countries excepting that which possessed the mine, as they would all contribute by their labour to produce those commodities with which money must necessarily be purchased by them.—
These are a few of the principles which have struck me as radically wrong in the work which I have perused,—it contains however much that is excellent and I should be sorry if we should lose what is good because some error may be mixed with it.
I do not know whether you are in a hurry to have the whole or part returned to you, I have unfortunately been much engaged of an evening lately and shall be for some days to come. I staid at home yesterday morning and employed myself exclusively in considering the passages to which I have alluded. I shall finish it in a few days, perhaps a week, if you can spare it so long, but if you can not let me know and I will return it immediately. I have marked with a pencil in the margin by a number, those passages which do not appear clear to me or from which I dissent and have made some short remarks upon them on a paper which I had before me. You will I fear be tired with this long uninteresting scroll, I therefore hasten to relieve you from any further fatigue attending its perusal. I hope you will write me a line informing me on what day in the next week you can make it convenient to take your mutton with me. I hope you will not quit me again before day light.
1 Jany 1811.