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Quotations about Liberty and Power

About this Quotation:

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.”

Other quotes about Money & Banking:

21 May, 2012

Ricardo200

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

Read the full quote in context here.

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 full passage from which this quotation was taken can be be viewed below (front page quote in bold):

3. 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?

4. 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?

The author evidently means all commodities together or the mass of prices.

5. Is not this assuming that what is not spent is hoarded. The revenue is in all cases spent, but in one case the objects on which it is expended are consumed, and nothing reproduced in the other those objects form a new capital tending to increased production.

6. If any rise in the price of commodities is caused in the way here supposed it must be by diminishing the amount of commodities, which will make the money which circulates them more relatively abundant. If the commodities remained the same and their price was increased, more money would be absolutely necessary to circulate them. But if it is the mass of prices of which the author speaks, he is mistaken because what one commodity rose in price another would fall.

7. These arguments are all founded on the supposition of the country to which they are applied being insulated from all others. If not it is evident that the rapidity of the circulation would cause an exportation of money, and would not therefore raise prices at home.

8. If by increase of capital he could increase his productions the price of them or of some other commodities2 must fall unless the money of the country has been also increased.

9. In this conclusion I perfectly agree3 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.

[9½.] Money cannot call forth goods,—but goods can call forth money.

The revenue of nations divided in two portions that expended on consumable commodities, and that saved for future capital a source of great error as their effects on prices the same.

10. Here again it is supposed that the augmentation of money precedes the augmentation of goods. I am of opinion however that it would seldom cause any augmentation of goods, and if it did it would be before prices had found their new level. It would be effected by turning a part of that fund destined for the wages of labour for a short time into capital.

[More works by David Ricardo (1772 – 1823) and on The Classical School of Political Economy]