Page 39 of 62

If Ricardo had built up this theory by abstract reasoning, as we have done it here, without introducing concrete facts and incidental matters which only distract his attention from the main question, its hollowness would be striking. But he takes up the entire subject in its international aspect. It will be easy to prove, however, that the apparent magnitude of scale does not make his fundamental ideas less diminutive.

His first proposition was as follows: the volume of metallic currency is normal when it is determined by the total value of the commodities in circulation estimated in its bullion value. Expressed so as to apply to international conditions, it reads thus: in a normal state of circulation every country possesses a quantity of money "according to the state of its commerce and Pg 243wealth." Money circulates at a value corresponding to its real value or to its cost of production, i. e. it has the same value in all countries.139 That being the case, "there could be no temptation offered to either for their importation or exportation."140 There would thus be established a balance of currencies between the different countries. The normal level of a national currency is now expressed in terms of an international balance of currencies, which practically amounts to the statement that nationality does not change anything in a universal economic law. We have reached again the same fatal point as before. How is the normal level disturbed? Or, speaking in terms of the new terminology, how is the international balance of currencies disturbed? Or, how does money cease to have the same value in all countries? Or, finally, how does it cease to pass at its own value in every country? We have seen that the normal level was disturbed by an increase or decrease of the volume of money in circulation while the total value of commodities remained the same; or, because the quantity of money in circulation remained the same while the exchange values of commodities rose or fell. In the same manner, the international level, determined by the value of the metal itself, is disturbed by an increase in the quantity of gold in a country brought Pg 244about by the discovery of new gold mines,141 or by an increase or decrease of the total exchange-value of the circulating commodities in any particular country. Just as in the former case the output of the precious metals decreased or increased according as to whether it was necessary to contract or expand the currency and thereby to lower or raise prices, so are the same effects produced now by export and import from one country to another. In the country in which prices would rise or the value of gold would fall below the bullion value in consequence of a redundant currency, gold would be depreciated, and the prices of commodities would rise as compared with other countries. Gold would, therefore, be exported, while commodities would be imported, and vice versa. Just as in the former case the output of gold, so now the import or export of gold and, with it, the rise or fall of prices of commodities would continue until, as we would have said before, the right value relation would be restored between the metal and commodities, or as we shall say now, the international balance of currencies would be restored. Just as in the former case the production of gold increased or decreased because gold stood above or below its value, so now the international migration of gold would take place for the same reason. Just as in the former case, every change in the production of the circulating metal affected its quantity and, thereby, prices, so would the same effect be produced now by international import and export. As soon as the relative values of gold and Pg 245commodities or the normal quantity of currency would be restored, no further production would take place in the former case, and no further export or import in the latter, except in so far as would be necessary to replace outworn coin and to meet the demand of manufacturers of articles of luxury. It follows "that the temptation to export money in exchange for goods, or what is termed an unfavorable balance of trade, never arises but from a redundant currency."142 "The exportation of the coin is caused by its cheapness, and is not the effect, but the cause of an unfavourable balance."143 Since the increase or decrease in the production of gold in the former case and the importation or exportation of gold in the latter, take place only whenever its volume rises above or sinks below its normal level, i. e. whenever gold appreciates or depreciates in comparison with its bullion value, or whenever prices of commodities are too high or too low; it follows that every such movement works as a corrective,144 since, through the resultant expansion or contraction of the currency, prices are restored to their true level: in the former case this level represents the balance between the respective values of gold and of commodities; in the latter, the international balance of currencies. To put it in other words: money circulates in different countries only in so far as it circulates as coin in every country. Money is but coin and all the gold existing in a country must therefore enter circulation, i. e. it can Pg 246rise above or fall below its value as a token of value. Thus we safely land again, by the round-about way of this international complication, at the simple dogma which constituted our starting point.

With what violence to actual facts Ricardo has to explain them in the sense of his abstract theory, a few illustrations will suffice to show. He maintains, e. g. that in years of poor crops, which happened frequently in England during 1800-1820, gold is exported not because corn is needed and gold as money is at all times an effectual means of purchase in the world market, but because gold is in such cases depreciated in its value as compared with other commodities and, therefore, the currency of the country in which there has been a failure of crops is depreciated with respect to other national currencies. "In consequence of a bad harvest, a country having been deprived of a part of its commodities ... the currency which was before at its just level ... become(s) redundant," and prices of all commodities rise in consequence.145 Contrary to this paradoxical inPg 247terpretation it has been proven statistically that from 1793 to the present time, whenever England had a bad harvest the available supply of currency not only did not become superabundant, but became inadequate and that, therefore, more money circulated and had to circulate on such occasions.146

In the same manner, Ricardo maintained, with reference to Napoleon's Continental System and the English Blockade Decree, that the English exported gold instead of commodities to the Continent, because their money was depreciated with respect to the money on the Continent, 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 Pg 248commodities were cheap and money was dear. The trouble, according to an English writer, was "the ruinously low prices of our manufactures and of our colonial productions under the operation ... of the 'Continental 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 English grazier tried experiments upon fattening oxen with treacle and molasses—of the times when we took possession 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.... Almost 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 5 an ounce, and send itPg 249 to a place where it would be received at 3 17s. 10-1/2d. an ounce.... It is too absurd, of course, to say ... that the gold was remitted instead of the coffee, as a preferable mercantile operation.... There was not a country in the world in which so large a quantity of desirable goods could be obtained, in return for an ounce of gold, as in England.... Bonaparte ... was constantly examining the English Price Current.... So long as he saw that gold was dear and coffee was cheap in England, he was satisfied that his 'Continental System 'worked well."147