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The second law discovered by Steuart is that of the reflux of credit circulation to its starting point. Finally, he works out the effects which the disparity of the rates of interest in different countries produces upon the international export and import of precious metals. The last two points we mention here only for the sake of completeness, since they have but a remote bearing on the subject of our discussion.128 Symbolic money or credit Pg 230money—Steuart does not as yet distinguish between the two forms of money—may take the place of precious metals as a means of purchase or means of payment in the sphere of home circulation, but never in the world Pg 231market. Paper notes are therefore "money of the society," while gold and silver are "money of the world."129
It is characteristic of nations with an "historical" development, in the sense in which the term is used by the historical school of law, to keep forgetting their own history. Although the controversy as to the relation of prices of commodities to the volume of the circulating medium has been continually agitating Parliament for the last half a century, and has precipitated in England thousands of pamphlets, large and small, Steuart has remained even more of a "dead dog" than Spinoza seemed to be to Moses Mendelson in Lessing's time. Even the latest writer on the history of "currency," Maclaren, makes Adam Smith the original author of Steuart's theory, and Ricardo of Hume's theory.130
While Ricardo elaborated Hume's theory, Adam Smith registered the results of Steuart's investigations as dead facts. Adam Smith applied the Scotch saying that "mony mickles mak a muckle" even to his spiritual wealth, and therefore concealed with petty care the sources to which he owed the little out of which he tried to make so much. More than once he prefers to break off the point of the discussion, whenever he feels that an attempt on his part clearly to formulate the question would compel him to settle his accounts with his predecessors. So in the case of the money theory. He tacitly adopts Steuart's theory when he says that the gold and silver existing in a country is partly utilized as coin; partly accumulated in the form of reserve funds for merchants in countries without banks, or of bank reserves in countries with a credit currency; partly serves as a hoard for the settling of international payments; partly is turned into articles of luxury. He passes over without remark the question as to the quantity of coin in circulation, treating money quite wrongly as a mere commodity.131 His vulgarizer, the dull J. B. Pg 233Say, whom the French have proclaimed prince de la science—like Johann Christoph Gottsched, who proclaimed his Schnaich a Homer and himself a Pietro Aretino to the terror principum and lux mundi—has with great pomp raised this not altogether innocent oversight of Adam Smith to a dogma.132 It must be said, however, that his hostile attitude to the illusions of the mercantile system prevented Adam Smith from taking an objective view of the phenomena of metallic circulation, while his views on credit money are original and deep. As in the eighteenth century petrification theories there is always felt the presence of an undercurrent which springs from either a critical or apologetic attitude toward the biblical tradition of the flood, so there is concealed behind all the money theories of the eighteenth century a secret struggle with the monetary system, the ghost which had stood guard over the cradle Pg 234of bourgeois economy and continued to throw its shadow over legislation.
In the nineteenth century, inquiries into the nature of money were not prompted directly by phenomena of metallic circulation, but rather by those of banknote circulation. The former was touched upon only in order to discover the laws governing the latter. The suspension of specie payments by the Bank of England in 1797, the rise of prices of many commodities which followed it, the fall of the mint price of gold below its market price, the depreciation of bank-notes, especially since 1809, furnished the direct practical occasion for a party struggle in parliament and a theoretical tournament outside of it, both conducted with like passion. The historical background for the controversy was furnished by the history of paper money during the eighteenth century: the fiasco of Law's bank; the depreciation of the provincial bank-notes of the English Colonies in North America from the beginning to the middle of the eighteenth century which went hand in hand with the increase in the number of tokens of value; further, the Continental bills issued as legal tender by the American government during the War of Independence; and finally, the experiment with the French assignats carried out on a still larger scale. Most of the English writers of that period confound the circulation of bank-notes, which is governed by quite different laws, with the circulation of tokens of value or government legal tender paper money; and while they claim to explain the phenomena of this legal tender circulation by the laws of metallic circulation, they proceed, as aPg 235 matter of fact, just the opposite way, viz., deducting laws for the latter from phenomena observed in connection with the former. We omit all the numerous writers of the period of 1800-1809 and turn directly to RICARDO, both because he embodies the views of his predecessors, which he formulates with greater precision, and because the shape he gave to the theory of money governs English bank legislation until this moment. Ricardo, like his predecessors, confounds the circulation of bank-notes, or credit money, with the circulation of mere tokens of value. The fact which impresses him most is the depreciation of paper currency accompanied by the rise of prices of commodities. What the American mines had been to Hume, the paper-bill presses in Threadneedle street were to Ricardo, and he himself expressly identifies the two factors at some place in his works. His first writings, which dealt exclusively with the money question belong to the time of the most violent controversy between the Bank of England, which had on its side the ministers and the war party, and its opponents about whom were centered the parliamentary opposition, the Whigs and the Peace party. They appeared as immediate forerunners of the famous Report of the Bullion Committee of 1810, in which Ricardo's views were adopted.133 The singular Pg 236circumstance, that Ricardo and his adherents, who held money to be merely a token of value, are called bullionists, is due not only to the name of that committee, but also to the nature of their theory. In his work on political economy, Ricardo repeated and developed further the same views, but nowhere has he investigated the nature of money as such, as he had done in the case of exchange value, profit, rent, etc.
To begin with, Ricardo determines the value of gold and silver, like that of all other commodities, by the quantity of labor-time embodied in them.134 By means of them, as commodities of a given value, the values of all other commodities are measured.135 The volume of the circulating medium in a country is determined by the value of the unit of measure of money on the one hand, and by the sum total of the exchange values of commodities, on the other. This quantity is modified by economy in the method of payment.136 Since the quantity of money, Pg 237of a given value, which can be absorbed by circulation, is thus determined and since the value of money within the sphere of circulation manifests itself only in its quantity, it follows that mere tokens of value, if issued in proportions determined by the value of money, may replace it in circulation, and in fact, "a currency is in its most perfect state when it consists wholly of paper money, but of paper money of an equal value with the gold which it professes to represent."137 So far Ricardo determines the volume of the circulating medium by the prices of commodities, assuming the value of money to be given; money as a token of value means with him a token of a definite quantity of gold and not a mere worthless representative of commodities as was the case with Hume.
