Theory of the Fiduciary System

  • Roy Green
Part of the Studies in Political Economy book series (STPE)


In the previous chapter, I have examined the development of eighteenth century monetary analysis. The period began with the inflationary collapse of Law’s System and ended with Smith’s succinct presentation of classical doctrine in the Wealth of Nations. The suspension of cash payments by the Bank of England in 1797 following the outbreak of the Napoleonic war opened a new phase of price inflation — or, more precisely, several distinct phases — and rekindled theoretical debate. This inflation was accompanied by a rise in the market price of bullion over its mint price, i.e., a depreciation of paper currency in terms of the monetary standard, a phenomenon which could not have existed when convertibility was enforced by law. The central problem was to explain the appearance of a premium on bullion, and to find a principle whose practical implementation would restore and maintain ‘economic convertibility’, thus ensuring that the bank notes conformed to the laws of metallic currency I have already outlined. It was not surprising, therefore, that the first decade of the nineteenth century should have been, in Marx’s words, ‘hardly more prolific of war bulletins than of monetary theories’ (1859, p. 81).


Money Supply Cash Payment Note Issue Monetary Expansion Quantity Theory 
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  1. 1.
    This point was to be developed later by the Banking School: ‘The authority issuing such paper money, can determine exactly the quantity that shall remain permanently in the hands of the public. The power of issue is unlimited, because there is no reflux...’ (Tooke, 1838/57, IV, p. 186).Google Scholar
  2. 2.
    Fiduciary money was also discussed in these terms by Marx, who pointed out that, ‘While the denomination of paper is based on gold and silver, the convertibility of the note, i.e., its exchangeability for gold and silver, remains an economic law regardless of what juridical law may say’ (1859, p. 83).Google Scholar
  3. 3.
    Hayek goes further in his Introduction to a new edition of Paper Credit; he argues that ‘in the field of money the main achievement of the classical period is due to Thornton’ (1802, p. 36). See also Rist (1940) pp. 135–40; Deane, (1978) p. 46.Google Scholar
  4. 4.
    The Bullion dispute marked the beginning of the Ricardo-Malthus correspondence. Following the publication of Ricardo’s High Price of Bullion in 1810, Mathus’s critical response in the Edinburgh Review of February 1811 and the rejoinder by Ricardo in the form of an appendix to a new edition of his work in April of that year, Malthus wrote to Ricardo directly for the first time on 16 June. He suggested that, ‘as we are mainly on the same side of the question, we might supersede the necessity of a long controversy in print respecting the points in which we differ, by an amicable discussion in private’ (Ricardo, 1951/58, IV, p. 21). A month later, however, Malthus admitted that, ‘[w]ith regard to the points of difference, between us, though perhaps we have approximated a little in our late conversations, I think, it seems, that we are not likely entirely to agree’; he recommended that Ricardo read Steuart’s Principles of Political Oeconomy, which would allow him to see ‘what I mean by a comparative rise of prices not occasioned by a comparative redundancy of currency’ (Malthus to Ricardo, 14 July 1811, ibid., pp. 33–4).Google Scholar
  5. 5.
    ‘Bank notes, though they yield an interest to the issuer, afford none to the man who detains them in his possession; they are to him as unproductive as guineas. The possessor of a bank note, therefore, makes haste to part with it. The possessor of a bill of exchange possesses, on the contrary, that which is always growing more valuable. The bill, when it is first drawn, is worth something less than a bank note, on account of its not being due until a distant day; and the first receiver of it may be supposed to obtain a compensation for the inferiority of its value in the price of the articles with which the bill is purchased. When he parts with it, he may be considered as granting to the next receiver a like compensation, which is proportionate to the time which the bill still has to run. Each holder of a bill has, therefore, an interest in detaining it’ (Thornton, 1802, pp. 92–3).Google Scholar
  6. 6.
    In the first chapter of his book, Thornton pointed out that commercial capital, ‘consists not in paper, and is not augmented by the multiplication of this medium of payment. In one sense, indeed, it may be encreased by paper. I mean, that the nominal value of the existing goods may be enlarged through a reduction which is caused by paper in the value of that standard by which all property is estimated. The paper itself forms no part of the estimate’ (1802, p. 79; see also p. 255). We have already struck the concept of ‘fictitious’ capital in Smith’s analysis and shall have occasion to return to it in the next chapter.Google Scholar
  7. 7.
    Thornton’s analysis was ahead of its time: ‘It must also be admitted, that, provided we assume an excessive issue of paper to lift up, as it may for a time, the cost of goods though not the price of labour, some augmentation of stock will be the consequence; for the labourer, according to this supposition, may be forced by his necessity to consume fewer articles, though he may exercise the same industry. But this saving, as well as any additional one which may arise from a similar defalcation of the revenue of the unproductive members of the society, will be attended with a proportionate hardship and injustice’ (1802, p. 239; see Niebyl, 1946, pp. 76–7; Schumpeter, 1954, p. 724).Google Scholar
  8. 8.
    How dependent was Ricardo on Thornton’s path breaking work was indicated not just by frequent quotation, but also by the use even of the same terminology: ‘The circulation can never be over-full. If it be one of gold and silver, any increase in its quantity will be spread over the world. If it be one of paper, it will diffuse itself only in the country where it is issued. Its effects on prices will then be only local and nominal...’ (1951/58, III, pp. 91–2).Google Scholar
  9. 9.
    Thornton continued: ‘In general it may, perhaps, also be assumed, that an excessive issue of paper has not been the leading cause of a fall in the exchange, if it afterwards turns out that the exchange is able to recover itself without any material reduction of the quantity of paper’ (1802, p. 221 fn.).Google Scholar
  10. 10.
    Ricardo replied in the High Price of Bullion: ‘Mr Thornton has not explained to us, why any unwillingness should exist in the foreign country to receive our goods in exchange for their corn; and it would be necessary for him to show, that if such an unwillingness were to exist, we should agree to indulge it so far as to consent to part with our coin.... We should not import more goods than we export, unless we had a redundancy of currency’ (Ricardo, 1951/58, III, p. 61). Thornton’s case was taken up by Malthus, but, again, it was found wanting on the grounds of internal inconsistency: ‘You maintain that money is rendered cheap by a bad harvest as compared with corn only, but with all other commodities it is dearer than before, — and then what appears to be very inconsistent you insist that this commodity thus rendered scarce and dear will be exported, though before it had increased in value, it had no tendency to leave us, whilst too there are commodities which have undergone an opposite change, which from being dearer have become cheaper, and which will nevertheless be obstinately retained by us. This is a mode of reasoning which I cannot reconcile’ (ibid., VI, pp. 38–9).Google Scholar
  11. 11.
    Thornton’s practical judgement was borne out by the facts: ‘That whenever there was a pause or cessation of the unusually large foreign expenditure by the government, or of unusually large foreign expenditure by the government, or of unusually large importations of corn, there was also a tendency to a restoration of the value of the paper, by a rise in the exchange, without any contemporaneous or immediately preceding reduction in the amount of Bank notes... (Tooke, 1838/57, IV, pp. 132–3). See also Horsefield (1941/44).Google Scholar
  12. 12.
    ‘To limit the total amount of paper issued, and to resort for this purpose, whenever the temptation to borrow is strong, to some effectual principle of restriction; in no case, however, materially to diminish the sum in circulation, but to let it vibrate only within certain limits; to afford a slow and cautious extension of it, as the general trade of the kingdom enlarges itself; to allow of some special, though temporary, encrease in the event of any extraordinary alarm or difficulty, as the best means of preventing a great demand at home for guineas; and to lean to the side of diminution, in the case of gold going abroad, and of the general exchanges continuing long unfavourable; this seems to be the true policy of the directors of an institution circumstanced like that of the Bank of England’ (Thornton 1802, p. 259). Fetter comments that, ‘This was the analysis of a policy maker, not of a pure theorist or an interested partisan’ (1965, p. 45). See also Horsefield (1941/44, pp. 27–9); Rist (1940, pp. 135–40).Google Scholar
  13. 13.
    It was Ricardo’s attempt to account for the ‘high price of gold’ that motivated his first appearance in print in the three letters to the Morning Chronicle in 1809, ‘The immense transactions which he had with the Bank of England, in the course of business, tallying with the train of studies on which he was then engaged, led Mr Ricardo to reflect upon the subject of currency, to endeavour to account for the difference which existed between the value of the coin and the Bank notes, and to ascertain from what cause the depreciation of the latter arose’ (Annual Biography and Obituary for the Year 1824, pp. 371–72, cited in Ricardo, 1951/58, III, p. 3). Sayers regards Ricardo’s adoption of the quantity theory of money as ‘a major disaster’ (1953, p. 79). Deane points out that Ricardo ‘swept aside, as unimportant or irrelevant, all qualifications which Thornton had noted to the simple monetary explanation’ (1978, p. 51). See also Viner (1937, pp. 139–40); Fetter (1965, p. 47).Google Scholar
  14. 14.
    In his Reply to Bosanquet, Ricardo followed Smith’s formulation, suggesting that a country ‘might substitute paper instead of bullion for the uses of money, but that the value of such paper must be regulated by the amount of coin of its bullion value which would have circulated had there been no paper’ (1951/58, III, p. 224; also IV, pp. 62–3).Google Scholar
  15. 15.
    Tooke attempted to distinguish the role of gold as a standard of price from its role as measure of value: ‘As a mere instrument or medium of exchange, at the same time and in the same place, invariableness of value, though desirable, is not of so much importance; the immediate purpose of money in this capacity being to serve as a point, or rather a scale, of comparison.... It is... on the subject of engagements or obligations for future payment, that in every view of justice and policy, the specific thing promised, in quantity and quality, should be paid at the expiration of the term’ (Tooke, 1838/57, IV, p. 146).Google Scholar
  16. 16.
    As we have already seen, Ricardo did not accept Thornton’s view that an unfavourable trade balance could arise even temporarily from a bad harvest and thus from a need to import grain. If coin were to be exported for such a purpose, it would be due only to its ‘cheapness’ and would be ‘not the effect, but the cause of an unfavourable balance’ (1951/58, III, p. 61). Thornton’s error, according to Ricardo, ‘proceeds from not distinguishing between an increase in the value of gold, and an increase in its money price’ (ibid., p. 60). It was also the error of Malthus, who, in his review of the High Price of Bullion, spoke of the possibility of an unfavourable balance ‘originating in causes which may exist without any relation whatever to redundancy or deficiency of currency’ (ibid., p. 101). In a lengthy reply in an appendix to the fourth edition of that work, Ricardo regarded it as ‘satisfactorily proved, that a bad harvest operates on the exchange in no other way than by causing the currency, which was before at its just level, to become redundant, and thus is the principle that an unfavourable exchange may always be traced to a relatively redundant currency most fully exemplified’ (ibid., pp. 106–7). The position of Malthus was ‘contradictory’, for, in earlier supposing a glut of commodities (which Ricardo interpreted as applying only to the ‘foreign market’), the export of money was due to its being ‘relatively redundant with commodities, as compared with other countries’ (ibid., p. 105; see also Ricardo’s letter to Malthus of July 17, 1811, VI, p. 38 and passim). The logic of Ricardo’s position, on the other hand, became still clearer in the context of a closed economy, where production shortfalls could not be remedied by imports, or by increased output given the Say’s law assumption of fully utilised capacity. In the early monetary debates, Ricardo was content to expose the failure of his critics to treat bullion as an ordinary commodity: ‘[A]fter having requested their reader to consider money and bullion merely as commodities subject to “the same general principle of supply and demand which are unquestionably the foundation on which the whole superstructure of political economy is built”; [they] forget this recommendation themselves, and... argue upon the subject of money, and the laws which regulate its export and import, as quite distinct and different from those which regulate the export and import of other commodities’ (ibid., pp. 103–4). Malthus nevertheless persisted in his view that, ‘many of the modern writers in political economy in their zeal to correct the absurd notions of the mercantile classes about the balance of trade have over-looked the real differences that exist between the precious metals and other commodities, from the circumstance of their having been adopted as a medium of exchange...’ (Malthus to Ricardo, June 16, 1811, ibid., VI, p. 21). This dispute about the nature of money continued, and became enmeshed with, the subsequent discussion of the ‘corn ratio’ approach to distribution (see Ricardo to Malthus, March 27, 1815, ibid., p. 203). Tooke regarded Malthus’s criticism of Ricardo as ‘just, as far as it goes’ (1838/57, IV, p. 101).Google Scholar
  17. 17.
    Ricardo reiterated this proposition in his Reply to Bosanquet. ‘If an addition be made to a currency consisting partly of gold and partly of paper, by an increase of paper currency, the value of the whole currency would be diminished, or in other words, the prices of commodities would rise, estimated either in gold coin or in paper currency’. In a closed economy, once gold had been “wholly withdrawn” from circulating it would ‘rise above the value of paper, and would soon obtain that relative value to other commodities which subsisted before any addition had been made to the circulation by the issues of paper’. It would then become the function of the mine to supply the quantity of gold required, and the paper currency would continue to be permanently depreciated’, anticipating the case of a fiduciary system: ‘During this interval, the gold mines of a country... could not be worked, because of the low value of gold, which would have reduced the profits on capital employed in the mines below the level of other mercantile concerns. As soon as this equality of profit were established, the supply of gold would be as regular as before.’ In an open economy, on the other hand, ‘any excess of... currency would be counteracted by an exportation of specie, and if that excess did not exceed the amount of coin in circulation,... no depreciation of the currency would take place’ (1951/58, III, pp. 210–12). This interpretation was affirmed by Ricardo in his notes on Bentham’s unpublished manuscript, ‘Sur les Prix’ (ibid., pp. 269–70).Google Scholar
  18. 18.
    To Bosanquet, who took the opposite view, Ricardo responded: ‘The analogy seems to me to be complete, and not to admit of dispute. The issues of paper not convertible are guided by the same principle, and will be attended with the same effects as if the Bank were the proprietor of the mine, and issued nothing but gold. However much gold may be increased, borrowers will increase to the same amount, in consequence of its depreciation; and the same rule is equally true with respect to paper. If money be but depreciated sufficiently, there is no amount which may not be absorbed...’ (1951/58, III, p. 217). Marx commented that, ‘Ricardo confuses the circulation of banknotes or of credit money with the circulation of simple tokens of value. The fact which dominates his thought is the depreciation of paper money and the rise in commodity-prices that occurred simultaneously. The printing presses in Threadneedle Street which issue paper notes played the same role for Ricardo as the American mines played for Hume’ (1859, pp. 169–70). Tooke showed that very different effects would follow from a gold issue by the Bank, depending upon the ‘mode of issue’ (1838/57, IV, p. 200).Google Scholar
  19. 19.
    In his private notes on the minutes of evidence to the Bullion Committee, Ricardo referred to the reliance upon the real bills doctrine by the Bank of England directors as ‘the source of all the errors of these practical men’ (1951/58, III, p. 362). However, the facts were clearly against Ricardo, for, taking the period as a whole, the real bills doctrine operated as an effective principle of limitation (Tooke, 1838/57, I, p. 159 and passim). In his Reply to Bosanquet, Ricardo conceded that, given the Bank of England’s attachment to the real bills doctrine, ‘it is a matter of surprise that our circulation has been continued within such moderate bounds’ (ibid., p. 221). Clapham comments with some justice: ‘If the Bank witnesses showed up badly as economists, their critics showed up no better as politicians’ (1944, p. 28).Google Scholar
  20. 20.
    As Tooke pointed out in his History of Prices, it was ‘the coincidence... between the market value and the Bank rate of interest, that prevented the tendency through this medium to progressive increase and irremediable excess of issues, which might have been apprehended if the Bank rate had been for any length of time much below the market rate’ (1838/57, I, p. 162). But see Chapter 7.Google Scholar
  21. 21.
    In reality, ‘the excess of the advances by the Bank to the Government over and above the amount of Government deposits, from the period of the suspension of cash payments in 1797, to the year 1811, was actually smaller in amount than the same excess during the seven years preceding that event... This comparative smallness of the advances to Government completely negatives the supposition, so commonly entertained and reasoned upon as a point beyond doubt, that the Bank was rendered, by the restriction, a mere engine in the hands of Government, for facilitating its financial operations’ (Tooke, 1838/57, IV, pp. 94, 96; see also Cannan, 1919, p. xxxvi; Andréadès, 1935, pp. 208–9; Deane, 1979, p. 17).Google Scholar
  22. 22.
    Ricardo accepted that monetary contraction could have a damaging effect on individual borrowers. He observed in the letters to the Morning Chronicle which followed publication of the Bullion Report: ‘As the paper system, pushed to the extravagant length which it now is, affords great facilities to this description of persons, there can be no doubt that every measure which tends to correct that system, every material reduction in the quantity of paper, will greatly embarrass and cause much distress amongst those who depend upon its continuance; and though the misfortunes of every part of the community must be deplored, it is to the pernicious system which has lately prevailed, that it will be alone to be ascribed’. The contraction, however, would not affect the level of output, for capital was not destroyed but merely redistributed among the ‘channels of trade’. Hence, Ricardo continued: ‘[W]hatever may be lost in consequence of the difficulties to which the persons of whom we have been speaking may be exposed, cannot be regarded an national loss, as the capital which they could command by the credit which the abundance of circulating medium afforded them will revert to those hands which have been heretofore dispossessed of it, and where it will at least be as profitably employed as in those where this ruinous system has placed it’ (1951/58, III, pp. 135–36).Google Scholar
  23. 23.
    Ricardo’s analysis in his drafts of the Plan for the Establishment of a National Bank (1824) anticipated the functions of central banking: Arnon (1987).Google Scholar
  24. 24.
    The dubious advantages of ‘consistency’ were alluded to by William Blake in his rejoinder (prior to publication) to Ricardo’s marginal notes on his Observations on the Effects Produced by the Expenditure of Government during the Restriction of Cash Payments (1823). Blake denied any observable relationship between the amount of bank notes and the high price of gold: ‘[M]ay, so far from it, that for months together they are found to run in opposite directions. It was this want of connexion, between the amount of Bank notes and the price of bullion, that first led me to suspect the accuracy of the theory, that attributed the high price of gold to the overissues of the Bank....’ Ricardo commented: ‘“Overissues of the Bank” Is not every thing an overissue after the market price of gold rises above the mint price, whether caused by a real rise in the value of gold or a real fall in the value of paper?’ Blake responded: ‘[Y]es overissue in the sense in which it is used by consistent political Oeconomists but not in the sense in which the public use it — viz. that notes have been issued in such excess as to alter the value of currency in respect to all commodities: there is a material difference between “overissue” and “non-contraction”’ (Ricardo, 1951/58, IV, p. 335).Google Scholar
  25. 25.
    The importance of Tooke’s work lay in his discovery of “the positive evidence that these expansions of the circulation, and those operations of the Bank which are described as “occasioning” the fall of the exchange could not have had any such consequence, unless it can be shown, that the date of a cause may be subsequent to the date of its effect’ (Tooke, 1838/57, IV, p. 138). He was determined to correct Ricardo’s persistent ‘misapprehension of the facts’ (ibid., p. 104). More recent commentators, such as Viner, have since demonstrated in some detail that Ricardo and his group ‘were clearly wrong in their denial that extraordinary remittances would operate to depress the value of the English currency on the exchanges...’ (1937, p. 142).Google Scholar
  26. 26.
    While some interpreted it as a concession, Ricardo was right to impress upon his readers that he had never held that every increase in prices was due to monetary depreciation: ‘[W]here has it been disputed that there are not other causes besides the depreciation of money which may account for a rise in the prices of commodities? The point for which I contend is, that when such rise is accompanied by a permanent rise in the price of that bullion which is the standard of currency, then to the amount of that rise is the currency depreciated’ (Reply to Bosanquet, in 1951/58, III, p. 251). Since the price of bullion had risen, this apparent concession did not materially affect Ricardo’s assessment of the contemporary inflation.Google Scholar
  27. 27.
    Ricardo had earlier presented these causes as follows: ‘[T]here may be a great increase in the capital of a country, which may so increase the quantity of commodities to be circulated, that there may be required more circulating medium at one time than at another; there may be a great diminution in the value of gold and silver, generally, in Europe, which may make it possible, with the same commerce, to maintain an increased amount of circulation; I consider, in all cases, that the quantity of circulation must depend upon its value, and the quantity of business which it has to perform’ (1951/58, V, pp. 372–3). At the time, however, statistics were lacking on changes in the level of output and the production costs of gold and silver.Google Scholar
  28. 28.
    This assessment is confirmed by Deane, who deduces from the accumulated evidence that the real bills doctrine ‘provided a reasonably acceptable criterion on which to base a prudent credit policy’ (1979, p. 17).Google Scholar
  29. 29.
    Tooke drew upon the vast empirical detail of his History of Prices to argue that, ‘[t]he notes of the Bank of England, and of the private banks of this country, were, for two years after the restriction, of the same value as if they had been convertible, and never experienced any discredit’ (1844, p. 70 fn.), and that, during the subsequent phases of inflation, causation ran from prices to the money supply, not the other way round. Also, Tooke observed, the paper money of the Russian government ‘seems never to have suffered any discredit; and the variation of the exchanges beyond those produced by the mere excess of the paper, were such only as are incidental to variations in the state of trade’. By contrast, the American colonial currencies during the war of independence and the French assignats ‘became ultimately valueless, when all prospect of redemption had ceased’ (ibid.). In other words, economic convertibility had not only not been maintained but had actually slipped out of reach.Google Scholar
  30. 30.
    ‘[T]he Currency School were not on very strong ground when they argued that the equilibrium gold value of notes could depreciate significantly in the presence of gold convertibility’ (Laidler, 1972, p. 179). See further below, ch. 7.Google Scholar
  31. 31.
    ‘It is manifest that the quantity of such money depends on the necessities and caprice of the issuer, and its value must fall in proportion to its increase’: ‘A Scotch Banker’ (1868), p. 100. See Laidler, (1972), p. 177; Fetter (1965), pp. 190–91.Google Scholar
  32. 32.
    Marx noted that, ‘the opinion of Adam Smith... is repeated by Thomas Tooke. This erroneous conception of the ratio of the quantity of money required for the realisation of revenues to the quantity of money required to circulate the entire social product is the necessary result of the uncomprehended, thoughtlessly conceived manner in which the various elements of material and value of the total annual product are reproduced and annually replaced’ (1867/94, II, p. 479).Google Scholar
  33. 33.
    Quite separately, George Poulett Scrope, like Attwood a ‘brilliant rebel’ (Fetter, 1965, p. 140), had already made the case for ‘an inconvertible paper money to be preserved at par with bullion ordinarily, but to be left free to deviate from par for short periods during which temporary fluctuations of the price level would otherwise occur’ (Viner, 1937, p. 288).Google Scholar
  34. 34.
    Fullarton was adamant about the retention of convertibility: ‘Let my views, however, not be misunderstood. Let it not be supposed, for a moment, that I am indifferent to the expediency and importance of maintaining intact the metallic basis of our circulation, and providing by the most judicious means of security that can be devised, for the perfect and uninterrupted convertibility of our bank paper’ (1844, p. 20). Yet he also maintained that the suspension of cash payments ‘had nothing like the share which has been commonly supposed, in producing those violent alternations of price’ (ibid., pp. 20–1; also p. 7 fn.). He argued that all the functions of gold and silver coins could be performed ‘as effectually by a circulation of inconvertible notes, having no value but that factitious and conventional value which they derive from the law’, and, echoing Steuart, that such notes could ‘supersede even the necessity for a standard, provided only the quantity of the issues be kept under due limitation’ (ibid., p. 21). For Marx, this aspect of Fullarton’s presentation showed ‘want of clearness’; just because ‘the commodity that serves as money is capable of being replaced in circulation by mere symbols of value,... its functions as a measure of value and a standard of prices are decared [by Fullarton] to be superfluous!’ (1867/94, I, p. 129 fn.). As a result, Fullarton managed to identify three disadvantages of fiduciary money, which, in his view, would rule it out as a feasible system of currency. The first was the lack of any ‘regulating principle’ by which the quantity could be ‘kept in exact proportion to the transactions which the currency has to perform’; fluctuations in the market-price of bullion ‘would not be sufficient’. Second, the ‘power of creating money’ would most likely be ‘abused’ by the government. Finally, ‘[a] conventional currency is the creature of the law, and it is only within the range, in which the law which creates it prevails, that it can serve the purposes of money’; a metallic standard was required not just to provide a medium of exchange for domestic circulation, but also to ‘facilitate our commercial intercourse with all the other nations of the world’ (1844, pp. 22–6). Fullarton was thus ‘another Law’ only to the extent that he imagined that the adoption of a fiduciary system would mean the complete abandonment of a metallic standard.Google Scholar
  35. 35.
    ‘In the same way as the exchange value of commodities is crystallised into gold money as a result of exchange, so gold money in circulation is sublimated into its own symbol, first in the shape of worn gold coin, then in the shape of subsidiary metal coin, and finally in the shape of worthless counters, scraps of paper, mere tokens of value’ (Marx, 1859, p. 114).Google Scholar
  36. 36.
    A rise or fall in the price level which corresponded with a change in the supply of fiduciary money was thus, according to Marx, ‘merely a forcible assertion by the process of circulation of a law which was mechanically infringed by extraneous action; i.e., the law that the quantity of gold in circulation is determined by the prices of commodities and the volume of tokens of value in circulation is determined by the amount of gold currency which they replace in circulation’ (1859, p. 121).Google Scholar
  37. 37.
    ‘The quantity theory being rightly regarded as refuted, there is a reluctance to give due recognition to the influence of quantity on the value of money even where it really is the determining factor, as in the case of paper money and depreciated currency’ (Hilferding, 1910, p. 50). On the suggestion that money was ‘imbued with a magic power which was supposed to be capable of adjusting and regulating the process of production’, see Niebyl (1946), p. 98.Google Scholar
  38. 38.
    Kuhne suggests that Marx’s ‘opposition to the theory of the Currency School was but a continuation of the polemics directed at Proudhon and his school (Darimon and others), who saw in the manipulation of banking policy the lever whereby to control cyclical developments and even to overcome capitalism’ (1979, p. 351). This interpretation has some validity.Google Scholar

Copyright information

© Roy Green 1992

Authors and Affiliations

  • Roy Green
    • 1
  1. 1.University of NewcastleAustralia

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