was depreciated with respect to the money on the Con-
tinent, that their commodities were, therefore, more
high priced, which made it a more profitable commercial
speculation to export gold than goods. According to
him England was a market in which commodities were
dear and money was cheap, while on the Continent
favorable harvest, when England has occasion for an unusual
importation of corn, another nation is possessed of a super-
abundance of that article, but has no wants for any commodity
whatever, it would unquestionably follow that such nation
would not export its corn in exchange for commodities: but
neither would it ewport corn for money, as that is a commodity
which no nation ever wants absolutely, but relatively." 1. c,
p. 75. Pushkin in his hero poem makes the father of his hero
incapable of comprehending that commodities are money. But
that money is a commodity, the Russians have understood from
times of yore as is proven not only by the English corn import*
in 1838-1842, but by the entire history of their commerce.
1 Conf. Thomas Tooke, "History of Prices," and James Wil-
son, "Capital, Currency and Banking." (The latter work is a
reprint of a series of articles which appeared in the London
Economist Jn 1844, 1845 and 1847.)
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commodities were cheap and money was dear. The trou-
ble, according to an English writer, was "the ruinously
low prices of our manufactures and of our colonial
productions under the operation . . . of the 'Con-
tinental System' during the last six years of the war.
. The prices of sugar and coffee, for instance, on
the Continent, computed in gold, were four or five times
higher than their prices in England, computed in bank-
notes. I am speaking ... of the times in which
the French chemists discovered sugar in beet-root, and
a substitute for coffee in chicory; and when the Eng-
lish grazier tried experiments upon fattening oxen with
treacle and molasses ā of the tunes when we took pos-
session of the island of Heligoland, in order to form
there a depot of goods to facilitate, if possible, the
smuggling of them into the north of Europe; and when
the lighter descriptions of British manufactures found
their way into Germany through Turkey. . . . Al-
most all the merchandise of the world accumulated in
our warehouses, where they became impounded, except
when some small quantity was released by a French
License, for which the merchants at Hamburgh and
Amsterdam had, perhaps, given Napoleon such a sum
as forty or fifty thousand pounds. They must have been
strange merchants ... to have paid so large a sum
for liberty to carry a cargo of goods from a dear market
to a cheap one. What was the ostensible alternative the
merchant had? . . . Either to buy coffee at 6d.
a pound in bank-notes, and send it to a place where it
would instantly sell at 3s. or 4s. a pound in gold, or to
buy gold with bank-notes at Ā£5 an ounce, and send it
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to a place where it would be received at Ā£3 17s. 10*4<L
an ounce: . . ' . It is too absurd, of course, to say
. . . that the gold was remitted instead of the oof-
fee, as a preferable mercantile operation. . . .
There was not a country in the **Ā£*& Z* which so
large a quantity of desirable goods could be obtained, in
return for an ounce of goid, as in England. . . .
Bonaparte . . . was constantly examining the
English Price Current . r . So long as he saw that
gold was dear and coffee was cheap in England, he was
satisfied that his 'Continental System* worked well/' 1
At the very time when Ricardo first formulated his
theory of money, and the Bullion Committee embodied
it in its parliamentary report, namely in 1810, a ruin-
ous fall of prices of all English commodities as com-
pared with those of 1808 and 1809 took place, while
gold rose in value accordingly. Only agricultural prod*
ucts formed an exception, because their importa-
tion from abroad met with obstacles and their domestic
supply was decimated by unfavorable crop conditions. 3
Ricardo so utterly failed to comprehend the role of
precious metals as an international means of payment,
that in his testimony before the Committee of the House
of Lords in 1819 he could say "that drains for exporta-
tion would cease altogether so soon as cash payments
1 James Deacon Hume: "Letters on the Corn Laws." Lon-
don, 1834, p. 29-31. [Letter by H. B. T. on the Corn Laws and
on the Rights of the Working Classes. TransL]
1 Thomas Tooke, "History of Prices/' etc. London, 1848,
p. 110.
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should be resumed, and the currency be restored to its
metallic leveL" He died just in time, on the very eve
of the crisis of 1825, which belied his prophesies.
The time when Bicardo wrote was generally little
adapted for the observation of the function of precious
metals as world money. Before the introduction of the
Continental System, the balance of trade had almost
always been in favor of England, and while that system
lasted, the commercial intercourse with the European
continent was too insignificant to affect the English
rate of exchange. The money transmissions were mostly
of a political nature and Bicardo seems to have utterly
failed to grasp the part which subsidy payments played
at that time in English gold exports. 1
Among the contemporaries of Bicardo who formed
the school which adopted his economic principles,
JAMES MILL was the most important one. . He at-
tempted to work out Bicardo's theory of money on the
basis of simple metallic circulation, without the irrele-
vant international complications which served Bicardo
to hide the inadequacy of his theory, and without any
controversial regard for the operations of the Bank of
England. His main arguments are as follows:
"By value of money, is here to be understood the
proportion in which it exchanges for other commodities,
or the quantity of it which exchanges for a certain
quantity of other things. ... It is the total quan-
tity of the money in any country, which determines
what portion of that quantity shall exchange for a cer-
1 Conf. W. Blake's above quoted "Observations etc"
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tain portion of the goods or commodities of that country.
If we suppose that all the goods of the country are on
one side, all the money on the other, and that they are
exchanged at once against one another, it is evident
. . . that the value of money would depend wholly
upon the quantity of it. It will appear that the case
is precisely the same in the actual state of the facts.
The whole of the goods of a country are not exchanged
at once against the whole of the money; the goods are
exchanged in portions, often in very small portions,
and at different times, during the course of the whole
year. The same piece of money which is paid in one
exchange to-day, may be paid in another exchange to-
morrow. Some of the pieces will be employed in a
great many exchanges, some in very few, and some,
which happen to be hoarded, in none at all. There
will, amid all these varieties, be a certain average num-
ber of exchanges, the same which, if all the pieces had
performed an equal number, would have been performed
by each ; that average we may suppose to be any number
we please; say, for example, ten. If each of the pieces
of the money in the country perform ten purchases,
that is exactly the same thing as if all the pieces were
multiplied by ten, and performed only one purchase
each. The value of all the goods in the country is equal
to ten times the value of all the money. ... If
the quantity of money instead of performing ten ex-
changes in the year, were ten times as great, and per-
formed only one exchange in the year, it is evident that
whatever addition were made to the whole quantity,
would produce a proportional diminution of value, in
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each of the minor quantities taken separately. As the
quantity of goods, against which the money is ail ex-
changed at once, is supposed to be the same, the value
of all the money is no more, after the quantity is aug-
mented, than before it was augmented. If it is supposed
to be augmented one-tenth, the value of every part, that
of an ounce for example, must be diminished one-tenth.
. . . In whatever degree, therefore, the quantity of
money is increased or diminished, other things remain-
ing the same, in that same proportion, the value of
the whole, and of every part, is reciprocally diminished
or increased. This, it is evident, is a proposition uni-
versally true. Whenever the value of money has either
risen or fallen (the quantity of goods against which it
is exchanged and the rapidity of circulation remaining
the same), the change must be owing to a corresponding
diminution or increase of the quantity ; and can be owing
to nothing else. If the quantity of goods diminish, while
the quantity of money remains the same, it is the same
thing as if the quantity of money had been increased ;"
and vice versa. . . . "Similar changes are produced
by any alteration in the rapidity of circulation. . . .
An increase in the number of these purchases has the
same effect as an increase in the quantity of money;
a diminution the reverse. ... If there is any por-
tion of the annual produce which is not exchanged at all,
as what is consumed by the producer; or which it not
exchanged for money ; that is not taken into the account,
because what is not exchanged for money is in the
same state with respect to the money, as if it did not
exist. . . . Whenever the coining of money Ā« . #
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is free, its quantity is regulated by the value of the
metal. . . . Gold and silver are in reality com-
modities ... It is cost of production . . .
which determines the value of these, as of other ordi-
nary productions." *
The whole wisdom of Mill resolves itself into a series
of arbitrary and absurd assumptions. He wishes to
prove that the price of commodities or the value of
money is determined by "the total quantity of the money
in any country." Assuming that the quantity, and the
exchange value of the commodities in circulation remain
unchanged and that the same be true of the rapidity of
circulation and of the value of precious metals as deter-
mined by the cost of production, and assuming at the
same time that the quantity of the metallic currency
increases or decreases in proportion to the quantity of
money existing in a country, it becomes really "evident"
that what was to have been proven has been assumed.
Mill falls, moreover, into the same error as Hume by
assuming that use-values and not commodities with a
given exchange value are in circulation, and that
vitiates his statement, even if we grant all of his "as-
sumptions." The rapidity of circulation may remain the
same; this may also be true of the value of the precious
metals and of the quantity of commodities in circulation ;
and yet a change in the exchange value of the latter
may require now a larger and now a smaller quantity
of money for their circulation. Mill sees that a part of
* James Mill: "Elements of Political Economy." [Jxmdon,
1821, p. 95-101 passim. Tranal.]
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the money in a country is in circulation, while another is
idle. With the aid of a most absurd average calculation
he assumes that, although it really appears to be differ-
ent, yet all the gold in a country does circulate. As-
suming that ten million silver thalers circulate in
a country twice a year, there could be twenty
million such coins in circulation, if each circulated but
once. And if the entire quantity of silver to be found
in a country in any form amounts to one hundred mil-
lion thalers, it may be supposed that the entire one
hundred million can enter circulation, if each piece of
money should circulate once in five years. One could
as well assume that all the money of the world circulate
in Hempstead, but that each piece of money instead of
being employed three times a year, is employed once in
3,000,000 years. The one assumption is as relevant as
the other for the purpose of determining the relation
between the sum total of prices of commodities and the
volume of currency. Mill feels that it is a matter of
decisive importance to him to bring the commodities
in direct contact not with the money in circulation, but
with the entire supply of money existing in a country.
He admits that "the whole of the goods of a country are
not exchanged at once against the whole of the money/'
but that the goods are exchanged in different portions
and at different times of the year for different portions
of money. To do away with this difficulty he assumes
that it does not exist Moreover, this entire idea
of direct contact of commodities and money and direct
exchange is a mere abstraction from the movement of
simple purchase and sale or the function o'f money as a
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means of purchase. Already in the movement of money
as a means of payment, commodity and money cease to
appear simultaneously.
The commercial crises of the nineteenth century,
namely, the great crises of 1825 and 1836, did not re-
sult in any new developments in the Ricardian theory of
money, but they did furnish new applications for it.
They were no longer isolated economic phenomena, such
as the depreciation of the precious metals in the six-
teenth and seventeenth centuries which interested
Hume, or the depreciation of paper money in
the eighteenth and early nineteenth centuries which
confronted Ricardo; they were the great storms
of the world market in which the conflict of all
the elements of the capitalist process of pro-
duction discharge themselves, and whose origin and
remedy were sought in the most superficial and abstract
sphere of this process, the sphere of money circulation.
The theoretical assumption from which the school of
economic weather prophets proceeds, comes down in
the end to the illusion that Ricardo discovered the laws
governing the circulation of purely metallic currency.
The only thing that remained for them to do was to sub-
ject to the same laws the circulation of credit and bank-
note currency.
The most general and most palpable phenomenon in
commercial crises is the sudden, general decline of prices
following a prolonged general rise. The general decline
of prices of commodities may be expressed as a rise in
the relative value of money with respect to all commodi-
ties, and the general rise of prices as a decline of the
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relative value of money. In either expression the phe-
nomenon is described but not explained. Whether I
pnt the question thus : explain the general periodic rise
of prices followed by a general decline of the same, or
formulate the same problem by saying: explain the
periodic decline and rise of the relative value of money
with respect to commodities ; the different wording leaves
the problem as little changed as would its translation
from German into English. Bicardo's theory of money
was exceedingly convenient, because it lends a tautology
the semblance of a statement of causal connection.
Whence comes the periodic general fall of prices? Prom
the periodic rise of the relative value of money.
Whence the general periodic rise of prices? Prom the
periodic decline of the relative value of money. It
might have been stated with equal truth that the peri-
odic rise and fall of prices is due to their periodic rise
and fall. The problem itself is stated under the as-
sumption that the intrinsic value of money, i. e., its
value as determined by the cost of production of precious
metals remains unchanged. If it is more than a tau-
tology then it is based on a misconception of the most
elementary principles. If the exchange value of A
measured in terms of B, declines, we know that this
may be caused by a decline of the value of A as much
as by a rise of the value of B ; the same being true of
the case of a rise of the exchange value of A measured
in terms of B. The tautology once admitted as a state-
ment of cause, the rest follows easily. A rise of prices
of commodities is caused by a decline of the value of
money and a decline of the value of money is caused,
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as we know from Bicardo, by a redundant currency,
i. e., by a rise of the volume of currency over the level
determined by its own intrinsic value and the intrinsic
value of the commodities. In the same manner, the gen-
eral decline of prices of commodities is explained by the
rise of the value of money above its intrinsic value in
consequence of an inadequate currency. Thus, prices
rise and fall periodically, because there is periodically
too much or too little money in circulation. Should
a rise of prices happen to coincide with a contracted cur-
rency, and a fall of prices with an expanded one, it may
be asserted in spite of those facts that in consequence
of a contraction or expansion of the volume of commod-
ities in the market, which can not be proven statistically,
the quantity of money in circulation has, although not
absolutely, yet relatively increased or declined. We have
seen that according to Bicardo these universal fluctua-
tions must take place even with a purely metallic cur-
rency, but that they balance each other through their
alternations; thus, e. g., an inadequate currency causes
a fall of prices, the fall of prices leads to the export of
commodities abroad, this export causes again an import
of gold from abroad, which, in its turn, brings about a
rise of prices; the opposite movement taking place in
case of a redundant currency, when commodities are im-
ported and inoney is exported. But, since in spite of
these universal fluctuations of prices which are in per-
fect accord with Ricardo's theory of metallic currency,
their acute and violent form, their crisis-form, belongs
to the period of advanced credit, it is perfectly clear
that Hie issue of bank-notes is not exactly regulated by
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the laws of metallic currency. Metallic currency has
its remedy in the import and export of precious metals
which immediately enter circulation and thus, by their
influx or efflux, cause the prices of commodities to fall
or rise. The same effect on prices must now be exerted
by banks by the artificial imitation of the laws of me-
tallic currency. If gold is coming in from abroad it
proves that the currency is inadequate, that the value
of money is too high and the prices of commodities too
low, and, consequently, that bank notes must be put in
circulation in proportion to the newly imported gold.
On the contrary, notes have to be withdrawn from cir-
culation in proportion to the export of gold from the
country. That is to say, the issue of bank notes must
be regulated by the import and export of the precious
metals or by the rate of exqhange.V Bieardo's false as-
sumption that gold is only coin, and that therefore all
imported gold swells the currency, causing prices lo ri*e,
while a 1 ] exported gold reduces the currency leading to
a fall of prices, this theoretical assumption is turned
into a practical experiment of putting in every ca?e an
amount of currency in circulation equal to the amount
of goK 1 in existence. Lord Overstone (the banker Jones
Loyd), Colonel Torrens, Norman, Clay, Arbuthnot ani
a h^t of other writers, known in England as the ad-
herc-ius of the "currency principle/' not only preached
this doctrine, but with the aid of Sir Robert Peel suc-
ceeded in 1844 and 1845. in making it the basis of the
present English and Scotch bank legislation. Its ig-
nominous failure, theoretical as well as practical, fol-
lowing upon experiments on the largest national scale,
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can be treated only after we take up the theory of credit. 1
So much can be seen, however, that the theory of Hicardo
which isolates money in its fluent form of currency, ends
by ascribing to the ebbs and tides in the supply of
precious metals an influence on bourgeois economy such
as the believers in the superstitions of the monetary sys-
tem had never dreamt of. Thus did Ricardo, who pro-
claimed paper currency as the most perfect form of
money, become the prophet of the bullionists.
After Hume's theory or the abstract opposition to the
1 A few months before the outbreak of the commercial crisis
of 1857, a committee of the House of Commons was in session
to inquire into the effect of the bank-laws of 1844 and 1845.
lord Overatone, the theoretical father of these laws, delivered
himself of this boast in his testimony before the committee:
"By strict and prompt adherence to the principles of the act of
1844, everything has passed off with regularity and ease; the
monetary system is safe and unshaken, the prosperity of the
country is undisputed, the public confidence in the wisdom of
the act of 1844 is daily gaining strength; and if the committee
wish for further practical illustration of the soundness of the
principles on which it rests, or of the beneficial results which it
has assured, the true and sufficient answer to the committee is,
look around you; look at the present state of trade of the coun-
try, look at the contentment of the people; look at the wealth
and prosperity which pervades every class of the community;
and then, having done so, the committee may be fairly called
upon to decide whether they will interfere with the continuance
of an act under which these results have been developed."
Thus did Overatone blow his own horn on the fourteenth of
July, 1857 ; on the twelfth of November of the same year the
Ministry had to suspend on its own responsibility the wonder-
ful law of 1844.
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monetary system was thus developed it its ultimate con-
clusions, Steuartfs concrete conception of money was fi-
nally restored to its rights by THOMAS TOOKE. 1
Tooke arrives at his principles not f ro*n any theory, but
by a conscientious analysis of the history of prices of
commodities from 1793 to 1856. In the first edition of
his History of Prices which appeared in 1823, Tooke is
still under the complete influence of the Ricardian the-
ory, and vainly tries to reconcile it with actual facts.
His pamphlet "On the Currency," which appeared after
the crisis of 1825 might even be considered as the first
consistent presentation of the views which were later
given the force of law by Overstone. Continued studies
in the history of prices forced him, however, to the con-
clusion that the direct connection between prices and the
volume of currency, as it is pictured by the theory, is a
mere illusion; that the expansion and contraction of
currency which takes place while the value of the pre-
cious metals remains unchanged, is always the effect
but never the cause of price fluctuations; that the circu-
lation of money is in any event but a secondary move-
ment; and that money assumes quite different forms in
the actual process of production in addition to that of
a circulating medium. His detailed investigations be-
long to a sphere outside of that of simple metallic cir-
culation and can be discussed here as little as the inves-
tigations of WILSON and FULLARTON which belong
1 Tooke was entirely ignorant of Steuartfs work, as may be
seen from hit "History of Prices for 1839-1847," London, 1848.
where he reviews the history of the theories of money.
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to the same class. 1 None of these writers takes a one-sided
view of money, but treat it in its various aspects; the
W treatment, however, is mechanical, without an attempt
to establish an organic connection either between these
various aspects themselves, or between them and the
combined system of economic categories. They fall,
therefore, into the error of confusing money as distin-
guished from medium of circulation with capital or
even with commodity, although they are forced else-'
where to differentiate it from both/ When gold, e. g.,
is shipped abroad, it practically means that capital is
sent abroad, but the same thing takes place when iron,
cotton, grain, or any other commodity is exported. Both
are capital and are distinguished not as capital, but as
money and commodity. The function of gold as the
international medium of exchange springs, therefore,
* Tooke's most important work besides the "History of Prices"
which his co-worker Newmarch published in six volumes, is