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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 ruinous fall of prices of all English commodities as compared with those of 1808 and 1809 took place, while gold rose in value accordingly. Only agricultural products formed an exception, because their importation from abroad met with obstacles and their domestic supply was decimated by unfavorable crop conditions.148 Ricardo so utterly failed to comprehend the rle 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 exportation would cease altogether so soon as cash payments Pg 250should 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 Ricardo 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 Ricardo seems to have utterly failed to grasp the part which subsidy payments played at that time in English gold exports.149

Among the contemporaries of Ricardo who formed the school which adopted his economic principles, JAMES MILL was the most important one. He attempted to work out Ricardo's theory of money on the basis of simple metallic circulation, without the irrelevant international complications which served Ricardo 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 quantity of the money in any country, which determines what portion of that quantity shall exchange for a cerPg 251tain 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 tomorrow. 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 number 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 exchanges in the year, were ten times as great, and performed 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, inPg 252 each of the minor quantities taken separately. As the quantity of goods, against which the money is all exchanged at once, is supposed to be the same, the value of all the money is no more, after the quantity is augmented, 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 remaining 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 universally 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 portion of the annual produce which is not exchanged at all, as what is consumed by the producer; or which is 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 ...Pg 253 is free, its quantity is regulated by the value of the metal.... Gold and silver are in reality commodities.... It is cost of production ... which determines the value of these, as of other ordinary productions."150

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 determined 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 "assumptions." 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 Pg 254the 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 different, yet all the gold in a country does circulate. Assuming 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 million 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 of money as aPg 255 means of purchase. Already in the movement of money as a means of payment, commodity and money cease to appear simultaneously.