Bentham is a series of unpublished pamphlets at the turn of the 19C broke with Adan Smith in setting out the view that creation of money was necessary to expand production and that credit could be over issued leading to depression. He also set out a ‘first use’ theory of money were growth was only sustained if it flowed into productive uses (not what we today would call assets or is hoarded). Of course the background to this was the impact of the Bank of England coming off the convertable gold standard in the Napoleonic war and issuing paper money.
Most important of these unpublished works by Bentham was ‘True Alarm’, a chaotic draft of which was given to his friend Dumont translated to French – called it ‘Sur le Prix’ and sent to James Mill seeking views on publication. Mill sent it to Ricardo who advised against it. Quotes from Ricardo in his marginal note are withering. These are often missourced to other published Ricardo works (for example in t,he Online Library of Liberty), no they were only published in Sraffas collected works vol 8. Similarly quotes from True Alarm are often missourced when they are from other Bentham published or unpublished pamphlets.
Some of those notable Quotes from Ricardo
-Why should the mere increase of money have any other effect than to lower its value? How would it cause any increase in the production of commodities?…
-Money cannot call forth goods, —but goods can call forth money…
– it is supposed that the augmentation of money precedes the augmentation of goods. I am of opinion however that it would seldom cause any augmentation of goods, and if it did it would be before prices had found their new level. It would be effected by turning a part of that fund destined for the wages of labour for a short time into capital…
-An increase in money will not add to the annual amount of land and labour in the country.
Clearly (as with Malthus) Ricardo made mincemeat with his opponents by his force of logic despite major problems with his own theory. Ricardo’s point was that an increase in money will not lead to an increase in value. Value resulted from land and labour. The value of money results from the cost of production of money. Only recently have I realised that the problems that the classical’s had with value theory are the flip side of the problems of treatment of time in their monetary theory and their solution requires an amendment to ricardian value theory.
The key classical insight was that the value of goods produced was equal to the value of the circulating medium used to exchange those goods. This means that if the production increases and the amount/velocity of the circulating medium stays the same that the value expression of money will decrease – the purchasing power of money will decrease. That means that money left idle/hoarded will lose value. Hence time has a real cost to wealth.
A creditary arrangement is to divert some future profit to the credit issuer in return for money creation today. That money then brings used resources on the intensive or extensive margin of production into use. This money is not creating immediate value at the point of credit issuance; rather in ensuring that a future stream of production takes place the value of money does not depreciate, and this stream of future production has a net present value. The rate of value depreciation (taking account of risk) is the rate of interest.
This is the mistake I think Ricardo made in failing to see value theory in proper temporal terms. Indeed attempts to rescue his value theory by James Mill (his annuity theory of fixed capital) and Nassau Senior (waiting theory of cost), require the same approach of discounting dated value inputs over time. Indeed Luaderdale and even Torrens admitted that they are mathematically equivalent. It is little known that Torrens withdrew all objections (in a letter to JS Mill in 1840) to the labour theory of value once he had read Lauderdale’s treatment of fixed capital. Marx sadly never understood this theory and made fatal mistakes in his treatment of depreciation as a result. If he had understood it there would have been no ‘transformation’ problem. In a future post ill present Lauderdales result mathematically and show what extent it rescues the criticisms of Torrens and other writers comtemporary with Ricardo of teh Labour Theory of value.