\"Thedearnessofeverything,\"saysHume,\"fromplentyofmoney,isadisadvantage,whichattendsanestablishedcommerce,andsetsboundstoitineverycountry,byenablingthepoorerstatestoundersellthericherinallforeignmarkets。\"\"Wherecoinisingreaterplenty;asagreaterquantityofitisrequiredtorepresentthesamequantityofgoods;itcanhavenoeffect,eithergoodorbad,takinganationwithinitself;anymorethanitwouldmakeanalterationonamerchant\'sbooks,if,insteadoftheArabianmethodofnotation,whichrequiresfewcharacters,heshouldmakeuseoftheRoman,whichrequiresagreatmany。Nay,thegreaterquantityofmoney,liketheRomancharacters,isratherinconvenient,andrequiresgreatertroublebothtokeepandtransportit。\"
Ifthisexampleweretoproveanything,Humewouldhavetoshowthatinagivensystemofnotationthequantityofcharactersemployeddoesnotdependonthenumericalvalue,butthatonthecontrarythenumericalvalueisdeterminedbythequantityofcharactersemployed。Itisquitetruethatthereisnoadvantageinevaluatingor\"counting\"commodityvaluesingoldorsilverofdiminishedvalue;andasthevalueofthecommoditiesincirculationincreased,therefore,nationsinvariablydecidedthatitwasmoreconvenienttocountinsilverthanincopper,andingoldthaninsilver。Intheproportionthatnationsgrewricher,theyturnedtheless—valuablemetalsintosubsidiarycoinandthemorevaluablemetalsintomoney。Hume,moreover,forgetsthatinordertocalculatevaluesintermsofgoldandsilver,neithergoldnorsilverneedbe\"present\"。Moneyofaccountandmeansofcirculationareforhimidenticalphenomenaandheregardsbothascoin。Becauseachangeinthevalueofthestandardofvalue,i。e。inthepreciousmetalswhichfunctionasmoneyofaccount,causesariseorfallincommodity—prices,andhence,providedthevelocityofmoneyremainsunchanged,anincreaseordecreaseinthevolumeofmoneyincirculation,Humeinfersthatincreasesordecreasesofcommodity—pricesaredeterminedbythequantityofmoneyincirculation。HumecouldhavededucedfromtheclosingdownofEuropeanminesthatnotonlythequantityofgoldandsilvergrewduringthesixteenthandseventeenthcenturies,butthatsimultaneouslytheircostofproductiondiminished。AlongwiththevolumeofimportedAmericangoldandsilvercommodity—pricesroseinEuropeinthesixteenthandseventeenthcenturies;commodity—pricesareconsequentlyineverycountrydeterminedbythevolumeofgoldandsilverwhichthecountrycontains。Thiswasthefirst\"necessaryconsequence\"
drawnbyHume。Pricesinthesixteenthandseventeenthcenturiesdidnotriseinstepwiththeincreasedamountofpreciousmetals;morethanhalfacenturyelapsedbeforeanychangeatallwasnoticeableinthepricesofcommodities,andevenafterthisaconsiderabletimeelapsedbeforethepricesofcommoditiesingeneralwererevolutionised,thatisbeforetheexchange—valuesofcommoditiesweregenerallyestimatedaccordingtothediminishedvalueofgoldandsilver。Hume——whoquitecontrarytotheprinciplesofhisownphilosophyuncriticallyturnsunilaterallyinterpretedfactsintogeneralpropositions——concludesthat,inconsequence,thepriceofcommoditiesorthevalueofmoneyisdeterminednotbytheabsoluteamountofmoneypresentinacountry,butratherbytheamountofgoldandsilveractuallyincirculation;inthelongrun,however,allthegoldandsilverpresentinthecountrymustbeabsorbedascoininthesphereofcirculation。[2]Itisclear,that,ifgoldandsilverthemselveshavevalue,quiteirrespectiveofallotherlawsofcirculation,onlyadefinitequantityofgoldandsilvercancirculateastheequivalentofagivenaggregatevalueofcommodities。Thus,ifwithoutreferencetothetotalvalueofcommodities,allthegoldandsilverthathappenstobeinthecountrymustparticipateasmeansofcirculationintheexchangeofcommodities,thengoldandsilverhavenointrinsicvalueandareindeednotrealcommodities。
ThisisHume\'sthird\"necessaryconsequence\"。AccordingtoHume,commoditieswithoutpriceandgoldandsilverwithoutvalueentertheprocessofcirculation。
He,therefore,nevermentionsthevalueofcommoditiesandthevalueofgold,butspeaksonlyoftheirreciprocalquantity。Lockehadalreadysaidthatgoldandsilverhaveapurelyimaginaryorconventionalvalue;thiswasthefirstbluntoppositiontothecontentionoftheMonetarySystemthatonlygoldandsilverhavegenuinevalue。Thefactthatgoldandsilveraremoneyonlyastheresultofthefunctiontheyperforminthesocialprocessofexchangeisthustakentomeanthattheirspecificvalueandhencethemagnitudeoftheirvalueisduetotheirsocialfunction。[3]Goldandsilverarethusthingswithoutvalue,butintheprocessofcirculation,inwhichtheyrepresentcommodities,theyacquireafictitiousvalue。
Thisprocessturnsthemnotintomoneybutintovalue:avaluethatisdeterminedbytheproportionoftheirownvolumetothevolumeofcommodities,forthetwovolumesmustbalance。Althoughthen,accordingtoHume,goldandsilverentertheworldofcommoditiesasnon—commodities,assoonastheyfunctionascoinhetransformsthemintoplaincommodities,whichareexchangedforothercommoditiesbysimplebarter。Providedtheworldofcommoditiesconsistedofasinglecommodity,e。g。,onemillionquartersofcorn,itwouldbequitesimpletoimaginethat,iftwomillionouncesofgoldexisted,onequarterofcornwouldbeexchangedfortwoouncesofgoldor,iftwentymillionouncesofgoldexisted,onequarterwouldbeexchangedfortwentyouncesofgold;thepriceofthecommodityandthevalueofmoneywouldthusriseorfallininverseratiototheavailablequantityofmoney。[4]Buttheworldofcommoditiesconsistsofaninfinitevarietyofuse—values,whoserelativevalueisbynomeansdeterminedbytheirrelativequantities。
HowthendoesHumeenvisagethisexchangeofcommoditiesforgold？Heconfineshimselftothevagueabstractconceptionthateverycommoditybeingaportionofthetotalvolumeofcommoditiesisexchangedforacommensurateportionoftheexistingvolumeofgold。Thedynamicmovementofcommodities——
amovement,whichoriginatesinthecontradictionofexchange—valueanduse—valuecontainedinthecommodities,whichisreflectedinthecirculationofmoneyandepitomisedinthevariousdistinctaspectsofthelatter——
isthusobliteratedandreplacedbyanimaginarymechanicalequalisationoftheamountofpreciousmetalspresentinaparticularcountryandthevolumeofcommoditiessimultaneouslyavailable。
SirJamesSteuartbeginshisinvestigationofspecieandmoneywithadetailedcriticismofHumeandMontesquieu。Heisindeedthefirsttoaskwhethertheamountofmoneyincirculationisdeterminedbythepricesofcommodities,orthepricesofcommoditiesdeterminedbytheamountofmoneyincirculation。Althoughhisexpositionistarnishedbyhisfantasticnotionofthemeasureofvalue,byhisinconsistenttreatmentofexchange—valueingeneralandbyargumentsreminiscentoftheMercantileSystem,hediscoverstheessentialaspectsofmoneyandthegenerallawsofcirculationofmoney,becausehedoesnotmechanicallyplacecommoditiesononesideandmoneyontheother,butreallydeducesitsvariousfunctionsfromdifferentmomentsincommodityexchange。
\"Theseuses\"（ofmoneyininternalcirculation）\"maybecomprehendedundertwogeneralheads。Thefirst,paymentofwhatoneowes;thesecond,buyingwhatonehasoccasionfor;theoneandtheothermaybecalledbythegeneraltermofready—moneydemands……Nowthestateoftrade,manufactures,modesofliving,andthecustomaryexpenseoftheinhabitants,whentakenalltogether,regulateanddeterminewhatwemaycallthemassofready—moneydemands,thatis,ofalienation。Tooperatethismultiplicityofpayments,acertainproportionofmoneyisnecessary。Thisproportionagainmayincreaseordiminishaccordingtocircumstances;althoughthequantityofalienationshouldcontinuethesame……Fromthiswemayconclude,thatthecirculationofacountrycanonlyabsorbadeterminatequantityofmoney。\"\"Thestandardpriceofeverything\"isdeterminedby\"thecomplicatedoperationsofdemandandcompetition\",which\"bearnodeterminedproportionwhatsoevertothequantityofgoldandsilverinthecountry\"。\"Whatthenwillbecomeoftheadditionalquantityofcoin？\"——\"Itwillbehoardedupintreasures\"
orconvertedintoluxuryarticles。\"Ifthecoinofacountry……fallsbelowtheproportionoftheproduceofindustryofferedforsale……inventionssuchassymbolicalmoneywillbefallenupontoprovideanequivalentforit。\"\"Whenafavourablebalancepoursinasuperfluityofcoin,andatthesametimecutsoffthedemandsoftradeforsendingitabroad,itfrequentlyfallsintocoffers;
whereitbecomesasuselessasifitwereinthemine。\"
ThesecondlawdiscoveredbySteuartisthatcurrencybasedoncreditreturnstoitspointofdeparture。Finallyheanalysestheconsequencesproducedbythediversityintherateofinterestobtainingindifferentcountriesontheexportandimportofpreciousmetals。Thelasttwoaspectsarementionedhereonlyforthesakeofacompletepicture,sincetheyareremotefromoursubject,namelysimplecirculation。[5]Symbolicalmoneyorcreditmoney——Steuartdoesnotyetdistinguishthesetwoformsofmoney——canfunctionasmeansofpurchaseandmeansofpaymentinplaceofthepreciousmetalsindomesticcirculation,butnotontheworldmarket。Papernotesareconsequently\"moneyofthesociety\",whereasgoldandsilverare\"moneyoftheworld\"。[6]
Itisacharacteristicofnationswithan\"historical\"development,inthesensegiventothistermbytheHistoricalSchoolofLaw,thattheyalwaysforgettheirownhistory。Thusalthoughduringthishalfcenturytheissueoftherelationbetweencommodity—pricesandthequantityofcurrencyhasagitatedParliamentcontinuouslyandhascausedthousandsofpamphlets,largeandsmall,tobepublishedinEngland,Steuartremainedevenmoreof\"adeaddog\"thanSpinozaappearedtobetoMosesMendelssohninLessing\'stime。Eventhemostrecenthistoriographerof\"currency\",MacClaren,makesAdamSmiththeinventorofSteuart\'stheory,andRicardotheinventorofHume\'stheory。[7]WhereasRicardoimprovesuponHume\'stheory,AdamSmithrecordstheresultsofSteuart\'sresearchasdeadfacts。TheScottishproverbthatifonehasgainedalittleitisofteneasytogainmuch,butthedifficultyistogainalittle,hasbeenappliedbyAdamSmithtointellectualwealthaswell,andwithmeticulouscareheaccordinglykeepsthesourcessecrettowhichheisindebtedforthelittle,whichheturnsindeedintomuch。
Morethanoncehepreferstotakethesharpedgeoffaproblemwhentheuseofprecisedefinitionsmighthaveforcedhimtosettleaccountswithhispredecessors。Thisis,forinstance,thecasewiththetheoryofmoney。
AdamSmithtacitlyacceptsSteuart\'stheorybyrelatingthatapartofgoldandsilveravailableinacountryisusedascoin,apartisaccumulatedasreservefundsformerchantsincountrieswhichhavenobanksandasbankreservesincountrieswithacreditsystem,apartservesasastockfortheadjustmentofinternationalpayments,andapartisconvertedintoluxuryarticles。Hequietlyeliminatesthequestionabouttheamountofcoinincirculationbyquiteimproperlyregardingmoneyasasimplecommodity。[8]ThisnotentirelyartlessslipofAdamSmithwaswithmuchpomposityfashionedintoadogma[9]byhisvulgariser,theinsipidJ。B。Say,whomtheFrenchhavedesignatedprincedelascience,justasJohannChristophGottschedcallshisSchonaichaHomerandPietroAretinocallshimselfterrorprincipumandluxmundi。ThetensioncausedbythestruggleagainsttheillusionsoftheMercantileSystempreventedAdamSmith,moreover,fromobjectivelyconsideringthephenomenaofmetalliccurrency,whereashisviewsonpapermoneyareoriginalandprofound。JustasthepalaeontologicaltheoriesoftheeighteenthcenturyinevitablycontainanundercurrentwhicharisesfromacriticaloranapologeticconsiderationofthebiblicaltraditionoftheDeluge,sobehindthefacadeofallmonetarytheoriesoftheeighteenthcenturyahiddenstruggleiswagedagainsttheMonetarySystem,thespectrewhichstoodguardoverthecradleofbourgeoiseconomyandstillcastitsheavyshadowoverlegislation。
Investigationsofmonetarymattersinthenineteenthcenturywerestimulateddirectlybyphenomenaattendingthecirculationofbank—notes,ratherthanbythoseofmetalliccurrency。Thelatterwasmerelyreferredtoforthepurposeofdiscoveringthelawsgoverningthecirculationofbank—notes。
ThesuspensionofcashpaymentsbytheBankofEnglandin1797,theriseinpriceofmanycommoditieswhichfollowed,thefallinthemint—priceofgoldbelowitsmarket—price,andthedepreciationofbank—notesespeciallyafter1809weretheimmediatepracticaloccasionforapartycontestwithinParliamentandatheoreticalencounteroutsideit,bothwagedwithequalpassion。Thehistoricalbackgroundofthedebatewasfurnishedbytheevolutionofpapermoneyintheeighteenthcentury,thefiascoofLaw\'sbank,thegrowingvolumeofvalue—tokenswhichwasaccompaniedbyadepreciationofprovincialbank—notesoftheBritishcoloniesinNorthAmericafromthebeginningtothemiddleoftheeighteenthcentury;afterwhichcamethelegally—imposedpapermoney,theContinentalbillsissuedbytheAmericanGovernmentduringtheWarofIndependence,andfinallytheFrenchassignats,anexperimentconductedonanevenlargerscale。MostEnglishwritersofthatperiodconfusethecirculationofbank—notes,whichisdeterminedbyentirelydifferentlaws,withthecirculationofvalue—tokensorofgovernmentbondswhicharelegaltenderand,althoughtheypretendtoexplainthephenomenaofthisforcedcurrencybythelawsofmetalliccurrency,inrealitytheyderivethelawsofmetalliccurrencyfromthephenomenaoftheformer。Weomitthenumerouswriterswhoseworksappearedbetween1800and1809andturnatoncetoRicardo,becausehenotonlysummariseshispredecessorsandexpressestheirideaswithgreaterprecision,butalsobecausemonetarytheoryintheformhehasgivenithasdominatedBritishbankinglawuptothepresenttime。Likehispredecessors,Ricardoconfusesthecirculationofbank—notesorofcreditmoneywiththecirculationofsimpletokensofvalue。Thefactwhichdominateshisthoughtisthedepreciationofpapermoneyandtheriseincommodity—pricesthatoccurredsimultaneously。TheprintingpressesinThreadneedleStreetwhichissuepapernotesplayedthesameroleforRicardoastheAmericanminesplayedforHume;andinonepassageRicardoexplicitlyequatesthesetwocauses。Hisfirstwritings,whichdealonlywithmonetarymatters,originatedatatimewhenamostviolentcontroversyragedbetweentheBankofEngland,whichwasbackedbytheMinistersandthewarparty,anditsadversariesaroundwhomweregroupedtheparliamentaryopposition,theWhigsandthepeaceparty。ThesewritingsaPpearedasthedirectforerunnersofthefamousReportottheBullionCommitteeof1810,whichadoptedRicardo\'sideas。[10]TheoddfactthatRicardoandhissupporters,whomaintainedthatmoneywasmerelyatokenofvalue,werecalledbullionistswasduenotonlytothenameoftheCommitteebutalsotothecontentofRicardo\'stheory。
Ricardorestatedandfurtherelaboratedthesameideasinhisworkonpoliticaleconomy,buthehasnowhereexaminedmoneyassuchinthewayinwhichhehasanalysedexchange—value,profit,rent,etc。
Tobeginwith,Ricardodeterminesthevalueofgoldandsilver,likethevalueofallothercommodities,bythequantityoflabour—timematerialisedinthem。[11]Thevalueofothercommoditiesismeasuredintermsofthepreciousmetals,whicharecommoditiesofadeterminatevalue。Thequantityofmeansofcirculationemployedinacountryisthusdeterminedbythevalueofthestandardofmoneyontheonehand,andbytheaggregateoftheexchange—valuesofcommoditiesontheother。Thisquantityismodifiedbytheeconomywithwhichpaymentsareeffected。[12]Since,therefore,thequantityinwhichmoneyofagivenvaluecanbecirculatedisdetermined,andwithintheframeworkofcirculationitsvaluemanifestsitselfonlyinitsquantity,moneywithinthesphereofcirculationcanbereplacedbysimplevalue—tokens,providedthattheseareissuedintheamountdeterminedbythevalueofmoney。Moreover\"acurrencyisinitsmostperfectstatewhenitconsistswhollyofpapermoney,butofpapermoneyofanequalvaluewiththegoldwhichitprofessestorepresent。\"[13]
Sofar,therefore,Ricardohasassumedthatthevalueofmoneyisgiven,andhasdeterminedtheamountofmeansofcirculationbythepricesofcommodities:forhimmoneyasatokenofvalueisatokenwhichstandsforadeterminatequantityofgoldandisnotavaluelesssymbolrepresentingcommodities,asitwasforHume。
WhenRicardosuddenlyinterruptsthesmoothprogressofhisexpositionandadoptstheoppositeview,hedoessoinordertodealwiththeinternationalmovementofpreciousmetalsandthuscomplicatestheproblembyintroducingextraneousaspects。Followinghisowntrainofthought,letusfirstofallleaveasideallartificialandincidentalaspectsandaccordinglylocatethegoldandsilvermineswithinthecountriesinwhichthepreciousmetalscirculateasmoney。TheonlypropositionwhichfollowsfromRicardo\'sanalysisuptonowisthatifthevalueofgoldisgiven,theamountofmoneyincirculationisdeterminedbythepricesofcommodities。Thevolumeofgoldcirculatinginacountrythereforeissimplydeterminedbytheexchange—valueofthecommoditiesincirculationatthegiventime。Nowsupposingthattheaggregateamountoftheseexchange—valuesdecreases,becauseeitherasmalleramountofcommoditiesisproducedattheoldexchange—values,orthesameamountofcommoditiesisproducedbutthecommoditiesrepresentlessexchange—valueasaresultofanincreaseintheproductivityoflabour。
Orletusassumebycontrastthattheaggregateexchange—valuehasincreased,becausealargervolumeofcommoditieshasbeenproducedwhileproductioncosts\'sremainconstant,orbecauseeitherthesameorasmallervolumeofcommoditieshasalargervalueasaresultofadeclineintheproductivityoflabour。Whathappenstotheexistingquantityofmetalincirculationinthesetwocases？Ifgoldismoneyonlybecauseitcirculatesasamediumofcirculation,ifitisforcedtostayinthesphereofcirculation,likepapermoneywithforcedcurrencyissuedbytheState（andRicardoimpliesthis）,thenthequantityofmoneyincirculationwill,inthefirstcase,beexcessiveinrelationtotheexchange—valueofthemetal,anditwillstandbelowitsnormallevelinthesecondcase。
Althoughendowedwithaspecificvalue,goldthusbecomesatokenwhich,inthefirstcase,representsametalwithalowerexchange—valuethanitsown,andinthesecondcaserepresentsametalwhichhasahighervalue。
Goldasatokenofvaluewillfallbelowitsrealvalueinthefirstcase,andriseaboveitinthesecondcase（oncemoreadeductionmadefrompapermoneywithforcedcurrency）。Theeffectwouldbethesameasif,inthefirstcase,allcommoditieswereevaluatedinmetaloflowervaluethangold,andinthesecondcaseasiftheywereevaluatedinmetalofahighervalue。Commodity—priceswouldthereforeriseinthefirstcase,andfallinthesecond。Themovementofcommodity—prices,theirriseorfall,ineithercasewouldbeduetotherelativeexpansionorcontractionintheamountofgoldincirculationoccasioningariseaboveorafallbelowthelevelcorrespondingtoitsownvalue,i。e。,thenormalquantitydeterminedbytherelationbetweenitsownvalueandthevalueofthecommoditieswhicharetobecirculated。
Thesameprocesswouldtakeplaceiftheaggregatepriceofthecommoditiesincirculationremainedconstant,buttheamountofgoldincirculationeitherfellbeloworroseabovetheproperlevel;theformermightoccurifgoldcoinwornoutincirculationwerenotreplacedbysufficientnewoutputfromthemines,thelatterifthenewsupplyfromtheminessurpassedtherequirementsofcirculation。Inbothcasesitisassumedthattheproductioncostofgold,oritsvalue,remainsunchanged。
Torecapitulate:iftheexchange—valuesofthecommoditiesaregiven,themoneyincirculationisatitsproperlevelwhenitsquantityisdeterminedbyitsownmetallicvalue。Itexceedsthislevel,goldfallsbelowitsownmetallicvalueandthepricesofcommoditiesrise,whenevertheaggregateexchange—valueofcommoditiesdecreasesorthesupplyofgoldfromtheminesincreases。Thequantityofmoneysinksbelowitsappropriatelevel,goldrisesaboveitsownmetallicvalueandcommodity—pricesfall,whenevertheaggregateexchange—valueofcommoditiesincreasesorthesupplyofgoldfromtheminesisinsufficienttoreplaceworn—outgold。Inthesetwocasesthegoldincirculationisatokenofvaluerepresentingeitheralargerorasmallervaluethanitactuallypossesses。Itcanbecomeanappreciatedordepreciatedtokenofitself。Whencommoditiesaregenerallyevaluatedinconformitywiththenewvalueofmoney,andcommodity—pricesingeneralhaverisenorfallenaccordingly,theamountofgoldincirculationwilloncemorebecommensuratewiththeneedsofcirculation（aresultwhichRicardoemphasiseswithspecialsatisfaction）,butitwillbeatvariancewiththeproductioncostsofpreciousmetals,andhencewiththerelationsofpreciousmetalsascommoditiestoothercommodities。AccordingtoRicardo\'sgeneraltheoryofexchange—value,theriseofgoldaboveitsexchange—value,inotherwordsabovethevaluewhichisdeterminedbythelabour—timeitcontains,wouldleadtoanenlargedoutputofgolduntiltheincreasedsupplyreduceditagaintoitspropervalue。Conversely,afallofgoldbelowitsvaluewouldleadtoadeclineintheoutputofgolduntilitsvalueroseagaintoitsproperlevel。Theseoppositemovementswouldresolvethecontradictionbetweenthemetallicvalueofgoldanditsvalueasamediumofcirculation;theamountofgoldincirculationwouldreachitsproperlevelandcommodity—priceswouldoncemorebeinaccordancewiththestandardofvalue。Thesefluctuationsinthevalueofgoldwouldinequalmeasureaffectgoldbullion,sinceaccordingtotheassumptionallgoldthatisnotusedasluxuryarticlesisincirculation。
Seeingthatevengoldintheformofcoinorbullioncanbecomeavalue—tokenrepresentingalargerorsmallervaluethanitsown,itisobviousthatanyconvertiblebank—notesthatareincirculationmustsharethesamefate。Althoughbank—notesareconvertibleandtheirrealvalueaccordinglycorrespondstotheirnominalvalue,\"theaggregatecurrencyconsistingofmetalandofconvertiblenotes\"mayappreciateordepreciateif,forreasonsdescribedearlier,thetotalquantityeitherrisesaboveorfallsbelowthelevelwhichisdeterminedbytheexchange—valueofthecommoditiesincirculationandthemetallicvalueofgold。Accordingtothispointofview,inconvertiblepapermoneyhasonlyoneadvantageoverconvertiblepapermoney,i。e。,itcanbedepreciatedintwoways。
Itmayfallbelowthevalueofthemetalwhichitprofessestorepresent,becausetoomuchofithasbeenissued,oritmayfallbecausethemetalitrepresentshasfallenbelowitsownvalue。Thisdepreciation,notofnotesinrelationtogold,butofgoldandnotestakentogether,i。e。,oftheaggregatemeansofcirculationofacountry,isoneofRicardo\'smaindiscoveries,whichLordOverstoneandCo。pressedintotheirserviceandturnedintoafundamentalprincipleofSirRobertPeel\'sbanklegislationof1844and1845。
Whatshouldhavebeendemonstratedwasthatthepriceofcommoditiesorthevalueofgolddependsontheamountofgoldincirculation。Theproofconsistsinpostulatingwhathastobeproved,i。e。,thatanyquantityofthepreciousmetalservingasmoney,regardlessofitsrelationtoitsintrinsicvalue,mustbecomeamediumofcirculation,orcoin,andthusatokenofvalueforthecommoditiesincirculationregardlessofthetotalamountoftheirvalue。Inotherwords,thisproofrestsondisregardingallfunctionsperformedbymoneyexceptitsfunctionasamediumofcirculation。
Whendrivenintoacorner,asforinstanceinhiscontroversywithBosanquet,Ricardo——entirelydominatedbythephenomenonofvalue—tokensdepreciatingbecauseoftheirquantity,——resortstodogmaticassertion。[14]
IfRicardohadpresentedhistheoryinabstractform,aswehavedone,withoutintroducingconcretecircumstancesandincidentalaspectswhichrepresentdigressionsfromthemainproblem,itshollownesswouldhavebeenquiteobvious。Buthegivesthewholeanalysisaninternationalveneer。
Itiseasytoshow,however,thattheapparentmagnitudeofscalecaninnowayaltertheinsignificanceofthebasicideas。
Thefirstproposition,therefore,was:thequantityofspecieincirculationisnormalifitisdeterminedbytheaggregatevalueofcommoditiesincirculationestimatedintermsofthemetallicvalueofspecie。Adjustedfortheinternationalscenethisreads:whencirculationisinanormalstate,theamountofmoneyineachcountryiscommensuratewithitswealthandindustry。Thevalueofmoneyincirculationcorrespondstoitsrealvalue,i。e。,itscostsofproduction:inotherwords,moneyhasthesamevalueinallcountries。[15]Moneythereforewouldneverbetransferred（exportedorimported）fromonecountrytoanother。Astateofequilibriumwouldthusprevailbetweenthecurrencies（thetotalvolumeofmoneyincirculation）ofdifferentcountries。Theappropriatelevelofnationalcurrencyisnowexpressedintheformofinternationalcurrency—equilibrium,andthismeansinfactsimplythatnationalitydoesnotaffectthegeneraleconomiclawatall。
Wehavenowreachedagainthesamecrucialpointasbefore。Inwhatwayistheappropriatelevelupset,whichnowreadsasfollows:inwhatwayistheinternationalequilibriumofcurrenciesupset,orwhydoesmoneyceasetohavethesamevalueinallcountries,orfinallywhydoesitceasetohaveitsspecificvalueineachcountry？Justaspreviouslytheappropriatelevelwasupsetbecausethevolumeofgoldincirculationincreasedordecreasedwhiletheaggregatevalueofcommoditiesremainedunchanged,orbecausethequantityofmoneyincirculationremainedconstantwhiletheexchange—valueofcommoditiesincreasedordecreased;sonowtheinternationallevel,whichisdeterminedbythevalueofthemetal,isupsetbecausetheamountofgoldisaugmentedinonecountryasaresultofthediscoveryofnewgoldminesinthatcountry,orbecausetheaggregateexchange—valueofthecommoditiesincirculationinaparticularcountryincreasesordecreases。Justaspreviouslytheoutputofpreciousmetalswasdiminishedorenlargedinaccordancewiththeneedforreducingorexpandingthecurrency,andinaccordancewithittolowerorraisecommodity—prices,sonowthesameeffectisachievedbyexportandimportfromonecountrytoanother。
Inacountrywherepriceshaverisenand,owingtoexpandedcirculation,thevalueofgoldhasfallenbelowitsmetallicvalue,goldwouldbedepreciatedinrelationtoothercountries,andthepricesofcommoditieswouldconsequentlybehigherthaninothercountries。Goldwould,therefore,beexportedandcommoditiesimported。Theoppositemovementwouldtakeplaceinthereversesituation。Justaspreviouslytheoutputofgoldcontinueduntiltheproperratioofvaluesbetweengoldandcommoditieswasre—established,sonowtheimportorexportofgold,accompaniedbyariseorfallincommodity—prices,wouldcontinueuntilequilibriumoftheinternationalcurrencieshadbeenre—established。Justasinthefirstexampletheoutputofgoldexpandedordiminishedonlybecausegoldstoodaboveorbelowitsvalue,sonowtheinternationalmovementofgoldisbroughtaboutbythesamecause。Justasintheformerexamplethequantityofmetalincirculationandtherebypriceswereaffectedbyeverychangeingoldoutput,sonowtheyareaffectedsimilarlybyinternationalimportandexportofgold。Whentherelativevalueofgoldandcommodities,orthenormalquantityofmeansofcirculation,isestablished,nofurtherproductionofgoldtakesplaceintheformercase,andnomoreexportorimportofgoldinthelatter,excepttoreplaceworn—outcoinandfortheuseoftheluxuryindustry。Itthusfollows,\"thatthetemptationtoexportmoneyinexchangeforgoods,orwhatistermedanunfavourablebalanceoftrade,neverarisesbutfromaredundantcurrency\"。[16]
Theimportorexportofgoldisinvariablybroughtaboutbythemetalbeingunderratedoroverratedowingtoanexpansionofthecurrencyaboveitsproperleveloritscontractionbelowthatlevel。[17]Itfollowsfurther:sincetheoutputofgoldisexpandedordiminishedinourfirstcase,andgoldisimportedorexportedinoursecondcase,onlybecauseitsquantityhasrisenaboveitsproperlevelorfallenbelowit,becauseitisratedaboveitsmetallicvalueorbelowit,andconsequentlycommodity—pricesaretoohighortoolow,everyoneofthesemovementsactsasitsowncorrective,for,byaugmentingorcurtailingtheamountofmoneyincirculation,pricesarereducedagaintotheircorrectlevel,whichisdeterminedbythevalueofgoldandthevalueofcommoditiesinthefirstcase,andbytheinternationallevelofcurrenciesinthesecond。