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Ghislain Deleplace, Ricardo on Money. A Reappraisal

Maria Cristina Marcuzzo
p. 119-124
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Ghislain Deleplace, Ricardo on Money. A Reappraisal, Abington: Routledge, 2017, 417 pages, ISBN 978-0441566158-4

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1In writing this book Ghislain Deleplace had a clear purpose in mind, namely to show that Ricardo “was not only a giant on value, distribution, and accumulation, but on money too” and this dictated his strategy, which amounts to “providing a comprehensive study of Ricardo on money, to rehabilitating him as a theorist, accounting for all his monetary writings, and suggesting his relevance for modern analysis” (5). The book is divided into three parts: I. History, presenting an overview of the features of the monetary system prevailing in Ricardo’s time; II. Theory, discussing the notions of value, depreciation and standard of money; III Policy, focusing on the adjustment mechanisms following a monetary shock and the role of the Central Bank.

2An essential part of Deleplace’s endeavour was to dismantle layers of interpretations that misrepresented Ricardo’s own thought, superimposing concepts and language that pertained to a different theory or applied to a different context. So it may be useful to start this review by stating right away, in full agreement with Deleplace and against much of the extant literature, that in Ricardo’s theory of money: a) gold is the standard of money; b) the depreciation/appreciation of money is measured by the purchasing power of the currency over the standard; c) there is only one monetary theory, applicable to both convertible and inconvertible paper money with or without coins in circulation.

3Ricardo was persuaded that, whatever the composition of the circulating medium, the quantity of money that should circulate within a given country ought to be equal to the quantity that would circulate if the entire circulation were made up of gold, but this does not imply that this quantity is determined by the gold/commodities ratio, as is often claimed in the literature. In the course of joint work with Annalisa Rosselli over the last 25 years (Marcuzzo and Rosselli, 1991, 2015) we have chosen to refer to this quantity, which has self-adjusting properties, as the “natural” quantity, following Ricardo’s own practice (Works and Correspondence III, 105, 193; VI, 75)

4Deleplace disputes our usage of “natural” and prefers to call it “conformable”. The point of contention is not semantic, but of substance. For Deleplace the conformable quantity of money, M* is a quantity consistent with the condition of conformity of money to the standard, “expressed by the equality between the value of money and the value of the standard (both in terms of all commodities except the standard)” (245). This condition of conformity is:

5Where: VM* = value of money in terms of a composite commodity, each unit of it being constituted by all transacted commodities (except gold bullion), PGC = legal (fixed) price in pounds of an ounce of gold in coin, VG = the value of gold in terms of the composite commodity.

6Although Deleplace is careful to present the conformable quantity as a benchmark to measure the depreciation and appreciation of money, i.e. as the deviation of the actual quantity from it, his formalization has the conformable quantity of money, M*, resulting in a determinate number (250):

7where k is a constant proportion of the value of circulating medium to the aggregate value of commodities, Y.

8On the contrary, what we have termed the “natural” level of money is not a determinable quantity. We can only find out when the level is such as to put to rest the forces that determine its changes, not what this level is. We argued:

When observing variations in the quantity of money, we know that they may be permanent, that is, reflecting changes in the structure of the economy that requires? a different natural level for the quantity of money, or temporary. The conformity of the price of gold to the mint price allows us to make this distinction. (Marcuzzo and Rosselli 2015, 374)

9There is plenty of evidence, as Deleplace acknowledges, showing that Ricardo explicitly denied that one could know precisely what the quantity of money ought to be at a given moment in time, and his policy recommendations were always consistent with this premise:

[T]he demand for circulating medium is subject to continual fluctuations, proceeding from an increase or decrease in the amount of capital and commerce; from a greater or less facility which at one period may be afforded to payments by a varying degree of confidence and credit; and … the same commerce and payments may require very different amounts of circulating medium. (Ricardo, Works and Correspondence, III, 247)

10Deleplace’s approach to the quantity of money derives from his belief, which I do not share, that the definition of the value of money as purchasing power over all commodities except the standard is necessary for an exhaustive account of Ricardo’s monetary theory. For this purpose, he goes so far as to interpret the famous passage by Ricardo where he denied that the value of money could be judged in relation to the “mass of commodities” (Ricardo, Works and Correspondence IV, 59) as an objection not to “the definition of the value of money but the impossibility of measuring it” (115). Nevertheless, he acknowledges that Ricardo objected to the idea that the purchasing power of money over commodities could be a test by which “the issuers of paper money should regulate the amount of their circulation”, his argument being:

that a test based on this mass could not target a change in the value of money—which affected all prices of commodities proportionally—since this change would be mixed with changes in relative prices that happened all the time, independently of the value of money (115-116).

11In conclusion, given the lack of evidence to support it, I do not see why Deleplace devotes so many pages to the definition of the value of money, struggling through various formulas, since it is a concept which defies any precision, given the impossibility of measuring it in terms of the “mass of commodities”. It seems to me that, as in the case of the “natural” quantity of money, also in the case of the value of money, Ricardo was not committed to a precisely quantitative determination, which he thought impossible to achieve, but was content to single out deviations from it which could be measurable. Once again, it is Deleplace himself who recalls Ricardo’s own words making the point (142).

To speak with precision, therefore, of the value of money at any particular period, was what no man could do; but when we spoke of depreciation, there was always a standard by which that might be estimated. (Ricardo, Works and Correspondence, V, 216-217)

12Deleplace’s book restores to us the richness of Ricardo’s monetary theory, although these differences of opinion on the value and the quantity of money still remain.

13On the adjustment mechanism of the quantity of money, Deleplace offers an eminently clear picture for each individual case of currency composition in closer detail than can be found anywhere else in the literature. Let me summarize the key points, covering more fully what we have elsewhere recently described in less detail (Marcuzzo and Rosselli, 2015).

14Proportional increase in prices, following an increase in the quantity of money is never accounted for with a direct link between the quantity of money and the level of prices but, rather, with the relationship between the quantity of money and the price of gold. Any increase in the quantity of money above the natural level brings about an exactly equal decrease in its purchasing power in terms of gold. The price at which the currency could be legally converted into gold, domestically and internationally, determined the ratio that must exist between the currency and its standard: when the market price of gold was equal to the official price, the quantity of money was, by definition, at the “right” level. Deviations from it were automatically corrected only in some monetary regimes, where gold could be obtained at a fixed price (and at a small cost) at home and freely exported and imported. The mechanism relied on merchants’ responses to profitability conditions for arbitraging in gold in the domestic and foreign markets. If the price of gold bullion on the domestic market rose above the official price, bullion was bought at the Bank or coins were melted and sold on the market, thereby lowering its price and decreasing the quantity of money in circulation. If the market rate of exchange fell (rose) relatively to the ratio between the official prices of gold in the two countries (violating the so called “gold points”) gold was exported (imported), the quantity of money was reduced (increased) to its “natural” level and the market rate of exchange was once again brought back to level at which it was no longer profitable to export or import gold

15In other regimes, where the convertibility of the currency into gold is suspended and gold coins are no longer in circulation, although the quantity of money loses its self-adjusting mechanism, the price of gold bullion and the market rate of exchange still measure the deviation of the quantity of money from the natural level. In these cases, rather, “value must be constantly vacillating” (Works and Correspondence, III, 139), which, for Ricardo, is a most undesirable state of affairs.

16The list of authors guilty of misinterpreting Ricardo is indeed quite long. While heated controversy has raged—notably in the 1970s and 1980s—over Ricardo’s theory of value and distribution, there has been surprisingly less disagreement as to what Ricardo’s theory of money actually was. This consensus view added to the list of ungrounded propositions attributed to Ricardo (gold as money, the determination of the equilibrium quantity of money, the dual determination of the value of money, the propagator of the quantity theory of money, the early monetarist, the founder-father of the currency school) led to the doubtful conclusion that he, unlike Thornton, could not grasp the importance of the instability of the demand for money.

17As Annalisa Rosselli aptly put it:

Could Ricardo, who had proudly proclaimed before the Lords Committee on the Resumption of Cash Payments “I have been all my life in the Money Market on the Stock exchange” (Ricardo, Works and Correspondence Works V: 416), and who had a thorough knowledge of the City, have remained unaware of the changes in the velocity of circulation of money which Thornton had described so well before him? (Rosselli, 2013, 869)

18A final word on Ricardo’s legacy for today’s world. Inheriting Ricardo’s wisdom means being able to translate his conceptual tools and forge them into our language and context so as to make them applicable to the present discussion. As in any translation, it is a delicate exercise that requires the ability to preserve the original meaning of a concept in rendering it into a different frame of language. Deleplace provides an example by suggesting a regime in which a “marketable asset that is legally convertible into money and into which money is legally convertible at a fixed price may play the same role [as Ricardo’s metallic standard], provided…that it does not belong to the system of production of commodities [and it is] a financial asset” (388-389).

19It is not within the scope of this review to enter into discussion on this proposal, which it is not presented in great detail in this book, but elsewhere dealt with more fully by the same author (Deleplace, 1994; see Kregel, 2016 for a useful commentary). Of the many aspects for which I believe Ricardo remains relevant to today’s concerns, I will stress just one here: his clear opposition to the idea that the level of prices is determined solely by the quantity of money. He explains the reasons:

[S]ome commodities are rising in value, from the effects of taxation, from the scarcity of raw material of which they are made, or from any other cause which increases the difficulty of production. … Others again are falling, from improved skill of the workmen, from the greater abundance of the raw material, and generally from greater facility of production. (Ricardo, Works and Correspondence, IV, 60)

20Unlike the adherents to the strict Quantity Theory of money, Ricardo warns us against it. So did Keynes, exactly 120 years later, when he argued that an increase in the quantity of money may not generate proportional increase in effective demand, the increase in effective demand may not give rise to a predictable rise in wages, and the rise in output and employment and prices may occur in various combinations so that there is not only one possible outcome (Marcuzzo, 2017).

21Today, the all-time record of money growth expansion by the Bank of Japan, Federal Reserve and European Central Bank offers an exceptional controlled experiment to give due credit to Ricardo for his view that the quantity of money is a bad predictor of inflation. Martin Feldstein was forced to admit as much: “The low rate of inflation in the United States is a puzzle, especially to economists who focus on the relationship between inflation and changes in the monetary base” (Feldstein, 2015, 1).

22Ricardo is not to be numbered among the exponents of this relationship (unlike most authors of current textbooks, who seem to find it hard to get out of their system) even though, unfortunately, it is the majority view in Ricardo’s scholarship, presenting him as the champion of the quantity theory of money. Hopefully, this book will help the “minority view” to make itself, if not accepted, at least better understood.

23The architecture of Deleplace’s book is somewhat “baroque”, with frequent repetitions and at times, perhaps, an excess of taxonomy and formalization, but without detracting from his primary endeavour. This, essentially lies in tracing the evolution in Ricardo’s theory of money from the Bullion Essays (1809–11) to Proposals (1816) and the Principles (1817–21) with great scholarly care, making of this book the most exhaustive, best researched and most profoundly impassioned account of Ricardo’s monetary theory at present available.

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Deleplace, Ghislain. 1994. Does Circulation Need a Monetary Standard? In Ghislain Deleplace and Edward J. Nell (eds), Money in Motion: the Post-Keynesian and Circulation Approaches. London: Macmillan.

Feldstein, Martin. 2015. The Inflation Puzzle. Available at

Kregel, Jan A. 2016. Financial Stability and Secure Currency in a Modern Context. Levy Economics Institute of Bard College, Working Paper No 877

Marcuzzo, Maria Cristina. 2017. The “Cambridge” Critique of the Quantity Theory of Money. A Note of How the Quantitative Easing Vindicates It. Journal of Post-Keynesian Economics, 40(2): 260-271.

Marcuzzo, Maria Cristina, and Annalisa Rosselli. 1991. Ricardo and the Gold Standard. The Foundations of the International Monetary Order. London: Macmillan.

Marcuzzo, Maria Cristina, and Annalisa Rosselli. 2015. The Natural Quantity of Money. In Heinz D. Kurz and Neri Salvadori (eds), Handbook of David Ricardo, 370-375. Cheltenham: Edward Elgar.

Ricardo, David. 1951–73. The Works and Correspondence of David Ricardo, ed. by Piero Sraffa, with the collaboration of Maurice H. Dobb. Cambridge: Cambridge University Press.

Rosselli, Annalisa. 2013. Economic History and History of Economics: In Praise of an Old Relationship. European Journal of the History of Economic Thought, 20(6): 865-881.

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Maria Cristina Marcuzzo, « Ghislain Deleplace, Ricardo on Money. A Reappraisal »Œconomia, 8-1 | 2018, 119-124.

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