David Ricardo on the “mere increase of money” (1809)

Found in The Works and Correspondence of David Ricardo, Vol. 3 Pamphlets and Papers 1809-1811

After Britain went off the gold standard so it could increase funding the war against Napoleon, the English economist David Ricardo (1772-1823) argued that the general increase in prices was a direct result of this policy and, in a series of articles which appeared in 1809, asked “Why should the mere increase of money have any other effect than to lower its value?”:

Why should the mere increase of money have any other effect than to lower its value? How would it cause any increase in the production of commodities?

This is true taking all commodities together, —but fashion or other causes may create an increased demand for one article and consequently the demand for some one or more of others must diminish. Will not this operate on prices?…

In this conclusion I perfectly agree if the author means the mass of prices, but a hundred articles might have risen, whilst another hundred might have fallen in consequence of increased or decreased demand, increased or decreased knowledge in the best means of producing them. Nay the mass of prices might remain the same tho’ each individual article had risen in consequence of taxation.

Money cannot call forth goods, —but goods can call forth money…

The English stockbroker and economist David Ricardo (1772-1823) got involved in an important debate in 1809-10 known as the Bullion Controversy. The British government went off the gold standard in order to increase funding for the war against Napoleon which inevitably led to an expansion in the money supply and a general increase in prices (inflation). Economists were divided as to why prices in general were rising but Ricardo was a supporter of gold backed currency and saw inflation as a direct result of the change in the government’s money and banking policy. After his initial essay on “The Price of Gold” was published in August 1809 a number of critics wrote letters to the magazine to which Ricardo responded. This quotation comes from one of those replies which were written between September and November. In it Ricardo writes like an “anti-Keynesian” in arguing that greater output can only come about as a result of greater savings not as a result of a greater quantity of money being put into circulation: “Money cannot call forth goods, —but goods can call forth money.”