Monetary Disequilibrium and the Demand for Money in Ricardo and Thornton

25 Pages Posted: 29 Oct 2012

See all articles by David Glasner

David Glasner

affiliation not provided to SSRN

Date Written: October 28, 2012

Abstract

This paper provides an account of the reasons for the differences between the theories of David Ricardo and Henry Thornton for the depreciation of sterling during the Napoleonic Wars. Ricardo held that only overissue by the Bank of England could cause depreciatiaon of sterling during the Restriction while Thornton believed that other causes, like a bad harvest, could also be responsible for declining value of sterling in terms of bullion. Ricardo thought that a strict application of the conditions of international commodity arbitrage under the gold standard showed that a bad harvest could not cause a depreciation of sterling, but, applying a barter model, he failed to consider the effect of a bad harvest on the demand for money. In contrast, Thornton’s anticipation of Wicksell’s natural-rate theory did not strictly adhere to the conditions of international commodity arbitrage assumed by Ricardo, allowing for the operation of a Humean price-specie-flow mechanism, but, like Ricardo, Thornton implicitly made the untenable assumption of an unchanging demand for money.

Suggested Citation

Glasner, David, Monetary Disequilibrium and the Demand for Money in Ricardo and Thornton (October 28, 2012). Available at SSRN: https://ssrn.com/abstract=2168012 or http://dx.doi.org/10.2139/ssrn.2168012

David Glasner (Contact Author)

affiliation not provided to SSRN

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