Let us then look at the positions of Ricardo and J.S.Mill. First, recall that mere recognition of the relevance to value of the supply or quantity of gold does not imply acceptance of what we have called the ‘strict’ quantity theorem (Part II, ch. 6, sec. 4). That is to say, the mere statement that the purchasing power of a monetary unit ‘depends upon’ supply and demand does not identify any particular theory of money. The first of the troubles with which the reader has to cope in this matter is that Ricardo and James Mill (and a long list of later writers on money, including Pigou and Cannan) did not realize this but, in striking analogy with their procedure in the case of the wage fund, tried to deduce the quantity theorem from the ‘law’ of supply and demand. As a result, in every individual instance, one has to ask himself whether they meant something that does follow from the ‘law’ of supply and demand—for example, that ceteris paribus an increase in the quantity of money will tend to decrease the purchasing power of the unit—or whether they meant more—for example, that ceteris paribus (strictissime) an increase in the quantity of money will decrease the purchasing power of the unit proportionately. The second of the troubles with which the reader has to cope arises from the fact that the term ‘quantity theory’ covers several meanings, so that if he finds that two writers disagree on whether or not ‘the’ quantity theory should be attributed to a given author, he must keep in mind the possibility that the two writers simply mean different things by that term. For our present purpose we shall define it to mean: first, that the quantity of money is an independent variable—in particular, that it varies independently of prices and of physical volume of transactions; 11 second, that velocity of circulation is an institutional datum that varies slowly or not at all, but in any case is independent of prices and volume of transactions; 12 third, that transactions—or let us say, output—are unrelated to quantity of money, and it is only owing to chance that the two may move together; fourth, that variations in the quantity of money, unless they be absorbed by variations in output in the same direction, act mechanically on all prices, irrespective of how an increase in the quantity of money is used and on what sector of the economy it first impinges (who gets it)—and analogously for a decrease. I maintain that Ricardo, before him Wheatley, after him James Mill and McCulloch, held the quantity theory in this strict sense and that no other major writers did. It is true that Ricardo—and the same goes for McCulloch but not for James Mill—introduced qualifications occasionally and that, here and there, he made statements that were logically incompatible with his strict ‘insipid hypothesis’ (abgeschmackte Hypothese). It seems that he took this position under the impression that the quantity theory of the value of money and the cost of production theory of money are alternatives between which the analyst has to choose. This is not so: the value of money as ‘determined’ by quantity and the value of money as determined by cost of production must, in the long run, necessarily coincide, as Mill elaborately showed. 11 As we shall presently see, this again carries different meaning according to the definition of Quantity of Money an author adopts. 12 This may be relaxed by inserting the word ‘normally.’ History of economic analysis 672 quantity theory, exactly as he did in matters of his labor-quantity law of value. In both cases, however, he mentioned them only in order to minimize their importance. In the same sense in which we are within our rights in averring that he held the latter, even though only as an approximation, we are also justified in attributing to him the strict quantity theory, as an approximation. 13 The case of J.S.Mill is quite different. 14 At the start, he committed himself indeed to a strict quantity theory in the sense defined, even asserting in so many words that variations in the quantity of money will affect its value ‘in a ratio exactly equivalent’ and that this property is ‘peculiar to money’ (Book III, ch. 8, 2). But he closed the chapter by saying that this strict quantity theory is nevertheless under modern conditions ‘an extremely incorrect expression of the fact.’ The apparent contradiction is easy to resolve. First, he confined the range of application of the quantity theorem to societies that know of no other means of payment except coin and irredeemable paper. The emergence of ‘credit,’ according to him, changes the situation radically: with a developed system of ‘credit,’ prices no longer depend, in any simple manner, on the quantity of money in that sense. 15 Second, he emasculated the quantity theorem still further, even for the case of a purely metallic circulation, by restricting its validity to the quantity of money that actually circulates. But the circulating quantity of money is certainly not independent of the business situation—output, employment, and so on—as J.S.Mill indicated by his turn 13 It only serves to blur the lines of historical development if some historians, exactly as in the field of the theory of value, insist that if all of Ricardo’s asides be collected and worked out, practically everything might be attributed to him that we find in any later writings. But he is fairly entitled to defense on another score. Writing at a time when ‘bank directors and ministers gravely contended…that the issues of notes by the Bank of England, unchecked by any power in the holders of such notes to demand in exchange either specie or bullion, had not, nor could have, any effect on the prices of commodities, bullion, or foreign exchanges’ (Principles, ch. 27), he was quite right to put the case against such foolishness more strongly than Thornton, with a more refined theory, was able to do. His famous analogy between the Bank’s power under the Restriction Act and the discovery of a gold mine in the Bank’s courtyard was not only telling but, so far as it went, also correct. This does not alter the fact, however, that, in matters of monetary as of general theory, Ricardian teaching is a detour and that it slowed up the advance of analysis, which could have been much quicker and smoother had Thornton’s lead been followed—had Ricardo’s force not prevailed over Thornton’s insight. 14 Mill’s exposition of the theory of money, or the bulk of it, is to be found in Principles, Book III, chs. 7–14 and 19–24. 15 The question arises whether the quantity theorem now applies to quantity of ‘money’ that includes notes and deposits. In its more modern versions, the quantity theorem is usually understood in this sense. But J.S.Mill did not take this line. Still less did he adopt the proposition that the quantity theorem retains validity for coins plus irredeemable paper, even in a developed credit system, because deposits bear a constant proportion to the reserves that consist of legal- tender money. This proposition, which was to be sponsored at the end of the subsequent period by Irving Fisher, was at the time held explicitly by Torrens and implicitly by Lord Overstone. Money, credit, and cycles 673 of phrase about the quantity of money ‘which people are wanting to lay out; that is, all the money they have in their possession except what they are hoarding, or at least keeping by them as a reserve for future contingencies’ (Book III, ch. 8, 2). Moreover, he was quite aware of the implications of this as we have seen in our discussion of his interpretation of Say’s law. And if we co-ordinate this with his recognition of the fact that purchases ‘on credit’—that is, by means of credit instruments of one kind or another— influence prices as much as do purchases for money (ibid. ch. 12), we discover that in his analytic schema it is not at all the quantity of money per se which acts upon ‘general prices’ but simply expenditure, and that this expenditure is not closely, let alone uniquely, related to the quantity of coin or paper money. Thus, there is hardly any difference left between Mill’s version of the quantity theory and the views of its opponents, contemporaneous or later. J.S.Mill’s conceptual arrangement achieved the same end that others achieved by making velocity an economic variable. For to make the relevant quantity of money a variable in the purchasing-power problem by defining it as the quantity that is actually being spent evidently comes to the same thing as to start from a given quantity of money (however defined) and to make average velocity an economic, and in particular a cyclical, variable. The former procedure takes the curse off constant velocity and has in addition this advantage, that it enables us to separate the two constituents of what is usually labeled as velocity: the rate of spending, which is certainly variable, and velocity in a narrower sense, which, being determined by habits of payment, the degree of concentration of industry, and the like, may in fact, normally at least, be treated as an institutional constant. There is no need to show how near this comes to very modern views. Before going on, I shall hastily mention two points about velocity that were of no great importance at the time though they gained some during the next period. First, then as later, some writers expressed themselves to the effect that the use of credit ‘economizes’ money or ‘makes money more efficient.’ This obviously invites the idea that credit increases the velocity of the legal-tender reserve money which, even though at rest in the vaults of banks, may then be said, metaphorically, to ‘circulate’ with a velocity much greater than it would have, if it actually did circulate. This idea was developed by Rodbertus (Die preussische Geldkrisis, 1845; see M.W.Holtrop, ‘Theories of the Velocity of Circulation of Money in Earlier Economic Literature,’ Economic History, A Supplement to the Economic Journal, January 1929, p. 520). Second, attempts at formulating an equation of exchange algebraically—which does not necessarily involve acceptance of the quantity theory—go far back (John Briscoe, H. Lloyd, see above, Part II, ch. 6, sec. 2c), but the most elaborate one of all belongs in the period under survey: J.W.Lubbock’s On Currency (1840)—an interesting book by a still more interesting man. His equation has been reproduced in Viner (op. cit. p. 249n.) and Marget (op. cit. vol. 1, p. 11, and p. 12, n. 8). History of economic analysis 674 3. GLEANINGS FROM THE DISCUSSIONS ON INFLATION AND RESUMPTION To be sure, no element of Mill’s performance originated with him. Yet there is historical merit in it. Both facts will stand out if we now survey a few of the landmarks on the road that led to his position. 1 The Englishmen who started writing on monetary policy around 1800 knew very little about the English work of the seventeenth and even eighteenth centuries and still less, almost nothing in fact, of the non-English work of those centuries—an interesting example of how the advance of economics has been and is being impaired by these recurrent losses of previous accumulations of knowledge. In particular, they knew nothing about Cantillon and Galiani and not much about Steuart. Even the relatively learned Thornton knew the works of Locke, Hume, Montesquieu, and, of course, A.Smith, 2 but not much else. Substantially they started afresh, which goes far to explain the frequent occurrence of quite primitive arguments, even with the best of them. Since we are not primarily interested in the practical issues at stake but in the methods of analysis that were used in their discussion and in only those methods that bear upon the fundamentals of monetary theory, there is not much to report. As we have seen, the Order in Council that suspended redemption of the notes of the Bank of England (1797) was a precautionary measure that was taken in response to a crisis and a run. Government borrowing from the Bank did not produce particularly visible effects for several years. When, however, prices began to rise and exchanges to fall, a torrent of articles and pamphlets poured forth whose thema probandum was that ‘excessive’ issue of irredeemable bank notes was responsible for those ‘evils.’ From his evidence before the two Committees of Secrecy (1797) to his two speeches on the Bullion Report (1811), 3 Thornton’s contributions outdistanced all others so far as width of comprehension and analytic power are concerned. Three of them are of the first order of importance for the history of monetary analysis. The first is the treatment of the ‘rapidity of circulation’ as a variable quantity that fluctuates with the state of ‘confidence,’ that is, substantially with general business conditions: 4 this rediscovery of a fundamental truth that stands historically in the name of Cantillon was never again lost, but it was so little attended to that it had to be rediscovered once more by Keynes. 5 The second is 1 Reference is again made to the extensive literature on that development (see above, sec. 1) and especially to the works of Viner and Marget. I now add J.H.Hollander, ‘The Development of the Theory of Money from Adam Smith to David Ricardo,’ Quarterly Journal of Economics, May 1911. 2 Familiarity with the Wealth of Nations implies, of course, some knowledge of the literature that influenced A.Smith. But I do not think that even such English works as Joseph Harris’ Essay (1757–8) were known in any other sense. 3 See Appendices I and III to the Library of Economics reprint of Paper Credit. 4 Paper Credit, ch. 3, especially p. 97. 5 Tract on Monetary Reform, 1923, pp. 87 et seq. The variability of Keynes’s k and k′ is in fact the main theoretical contribution of the Tract. Money, credit, and cycles 675 the introduction of interest into the theory of the monetary process or, more precisely, the casting into a scientific mold of ideas on the relation between money, prices, and interest (see below, sec. 4a) that are intuitively familiar to every banker. 6 The third, which concerns the monetary aspects of international trade, will be discussed below in Section 5. But there is something else. In bringing his analytic apparatus to bear upon the facts and practical problems of his day and country, Thornton proved himself a past master of the art of economic diagnosis. He was the only one of the leading writers to see the effects of the Bank’s note issue and at the same time to keep it in its proper place in the total pattern of factors that shaped the English monetary situation during the first decade of the nineteenth century. Such merits as the Bullion Report of 1810 undoubtedly does possess—especially that honest, if somewhat uninspired, listing of all relevant facts whether causes, consequences, or symptoms—must be ascribed primarily to him. 7 The other ‘bullionists’ or supporters of the policy that is embodied in the Bullion Report—resumption of specie payments by the Bank of England at the earliest possible date—are not, either by virtue of equal quality of work or by virtue of close similarity of views, entitled to be classed with Thornton. In addition to Wheatley and Ricardo, who represent a distinctly different school of thought, we merely notice Boyd and Lord King, whose arguments belong to the Wheatley-Ricardo line rather than to Thornton’s, and Malthus for whom the opposite would be nearer to the truth. 8 Basically, their case was very simple. That the premium on bullion was proof of a ‘depreciation’ of bank notes was little more than a definition. That this premium was greater, 6 It might be said that the ‘inflationists’ of the seventeenth and eighteenth centuries, the French and Italian as well as the English, had already explored the matter. But they had done so unsystematically and without facing the theoretical issues involved. The only economist who may claim to be Thornton’s forerunner in any more significant sense was Hume, and even he was not in possession of the propositions that are characteristic of Thornton’s teaching, except the one to be mentioned below. Verri is in the same case. 7 According to a letter of Francis Horner, quoted in Hayek’s Introduction to Thornton’s Paper Credit, p. 54, the report was ‘a motley composition by Huskisson, Thornton and myself.’ My impression is that Horner may be, to some extent, considered a pupil of Thornton. Huskisson cannot. But he was an experienced and intelligent man who was not in the habit of running away with one-factor explanations. It is I think fair to say that much of the adverse criticism of the Report was directed against its recommendations of policy rather than against its analysis. But as is usual in such cases, critics who took exception to the recommendations (and this was very understandable) thought themselves in duty bound to attack the analysis from which the recommendations were supposed to follow. Malthus (Principles, p. 7), however, paid a judicious compliment to the report’s analysis. 8 Walter Boyd, A Letter to…William Pitt (1801); Peter King, Thoughts on the Effects of the Bank Restriction (1803). King exerted considerable influence upon Ricardo. Malthus’ two papers on the ‘Depreciation of Paper Currency’ and ‘Review of the Controversy respecting the High Price of Bullion,’ both appeared in the Edinburgh Review, 1811 (vols. 17 and 18). History of economic analysis 676 exchanges more unfavorable, and prices higher than they would have been, other things being equal, with a note circulation such as would have been possible had the notes been redeemable—that is, simply with a smaller note issue—only unreasonable stubbornness could deny. It was the not much less unreasonable stubbornness, with which they minimized all other factors in the situation, that laid them open to replies which were successful on several points. 9 Disapproval of a note issue greater than the amount possible under redemption of notes on demand presupposes, of course, that the latter is taken for the normal or ideal condition of the currency. This makes theoretical and practical metallists of all these ‘bullionists.’ But it does not necessarily mean that they held any strict quantity theory—Thornton, for example, certainly did not. There are much more interesting questions which emerge behind these basic ones as soon as it comes to analyzing the mechanism of inflation in detail, particularly the relations between the issue of the Bank of England and the country banks. But we cannot go into these. The considerable success of the Wheatley-Ricardo line was due not only to Ricardo’s force and brilliance but also to the lack of these qualities in his opponents. We shall confine ourselves to the outstanding authority among them, Thomas Tooke, 10 whose writings, though the first of them appeared only in 1826, represent better than do any others the strong as well as the weak points in the case against Ricardo’s analysis. The most obviously strong point—we continue to neglect the issue of policy—was of course that, in an inflation as mild as was the one of the English restriction period, the influence of non-monetary factors and even of factors that affect directly individual commodities or groups of commodities only (such as the cereals) must necessarily account for a much greater part of observed phenomena than would be so in cases of advanced, let alone wild, inflation. A good or bad harvest, a boom or a crisis, will then sometimes dominate a given price situation so as to reduce, for the moment, the inflationary influence to insignificance. The thing for the analyst to do in such cases is to assemble and to discuss the data carefully, year by year or even month by month, in order to make them speak for themselves. Tooke did this very well 9 On the concessions which the bullionists did make and those which they ought to have made, see Viner, op. cit. pp. 127–38. The ‘anti-bullionists’ relied, for the explanation of the persistently unfavorable exchanges, mainly on the balance-of-payment argument. See below, sec. 5. In retrospect, it seems as though they would have been wiser had they admitted the basic contention of their opponents and confined themselves to asking what of it and to attacking the recommendation of speedy return to gold at prewar par. 10 All the reader needs—and more—is contained in the monumental History of Prices (6 vols., 1838–57) which we have characterized already. But the work that was the first to present his views in something approaching a systematic form (Considerations on the State of the Currency, 1826), a second work (On the Currency in Connection with the Corn Trade…1829), and the work in which polemical ardor got the better of him and led him to abandon some of his best results (An Inquiry into the Currency Principle, 1844) have some independent importance. Money, credit, and cycles 677 and with a considerable measure of success, and this would have been quite enough to invalidate Ricardo’s theory in its application to the situation then prevailing. But Tooke aimed at more than this and attacked Ricardo’s theory as theory. This, also, could have been done successfully—on lines that could have been derived from Thornton’s work— but Tooke was quite unequal to this task. He had no notion of the logical relation between observation and analysis and never understood what facts may, and what facts may not, be adduced in verification or refutation of a theory. 11 And the moment he lost contact with individual situations, which he knew how to analyze, he seemed to lose the ability to think—the most eminent of that large class of economists who are in the same predicament. He then even lost that healthy sense for the absurd, which stood him in good stead in his factual analysis, and had no hesitation in committing himself to obviously untenable propositions such as some of the conclusions in the Inquiry of 1844 by which he tried to sum up his views on the fundamentals of monetary theory. The twelfth of these conclusions declares in so many words that prices of commodities do not depend—he failed to add ‘uniquely,’ which would have saved the situation—‘upon the amount of the circulating medium’ but that, on the contrary, the amount of the circulating medium ‘is the consequence’ of prices. However, before we put this down as downright silly, it is as well to recall that he was facing economists who denied entirely the existence of the relation which his twelfth conclusion asserted and that Tooke may be in part justified on this ground—and also be given the benefit of the mitigating circumstance that he was unsurpassable in clumsiness of formulation. The thirteenth conclusion then gives, though in a form that is not less clumsy, Tooke’s theory of general prices, which has been much admired, especially in Germany, 12 where, partly improved, it experienced a revival in the first two decades of the twentieth century. Essentially, it comes to this. Since, on the one hand, commodities may be purchased without the use of ‘money’ and since, on the other hand, ‘money’ need not all become active (in which case it really is, as far as action upon prices is concerned, nonexistent), the quantity of money on which Ricardo reasoned is not a useful datum. What acts upon prices is expenditure, however financed. Within total expenditure of all kinds and for all purposes, the expenditure for consumption or investment by house- 11 The best example of this curious failing, which Tooke shared with so many economists of his day and of our own, is his later attempt (in the Inquiry of 1844) to refute the theory that a money rate of interest which is lower than the prevailing (marginal) rate of profit tends to raise prices. In 1826, he had upheld and even elaborated this proposition of Thornton’s: to have done so is in fact one of his chief services to monetary analysis. In 1844, he tried, however, to refute it, and even to uphold the opposite thesis by ‘factual proof.’ The reader will realize that this is quite easy to do and about as intelligent as it would be to hold that taking aspirin does not alleviate, in fact even causes, headaches on the ground that the consumption of aspirin is undoubtedly associated with people’s having headaches. 12 The German enthusiasm for Tooke as a theorist was I think in great part due to the influence of Adolf Wagner. History of economic analysis 678 holds enjoys a particularly important position. ‘And here we come to the ultimate regulating principle of money prices’ (History, vol. III, p. 276): the fundamentally determining factor consists in ‘the revenues of the different orders of the state, under the head of rents, profits, salaries, and wages…’ In other words, we come out with the ‘income approach’ to the problem of the value of money. 13 It should be said at once that Tooke himself offers several clues for restating this Income Theory of Money more correctly and for developing it in various ways, one of which ends at Keynes’s General Theory. But as left by Tooke, it is open to a criticism that greatly reduces its importance: 14 those revenues are obviously not ultimate data; prices determine them as much as they determine prices; and in the complex of factors that generate them, quantity of money has its place. It is not difficult to imagine the gusto with which Ricardo would have taken his hatchet and so trimmed down Tooke’s disorderly argument as to be able to show triumphantly that those revenues were nothing but quantity of money times velocity. Still, though we shall have to notice more important contributions of Tooke, the importance of this one should not, if its suggestive power be duly taken into account, be evaluated at zero. Let us now return for a moment to J.S.Mill and his performance. In the light of what we have learned since we left him, we might describe his teaching as a blend between Ricardo’s and Tooke’s. He saw the shortcomings of the Wheatley-Ricardo analysis and filed off its rough edges or some of them; he saw the shortcomings of Tooke’s analysis and quickly corrected their most glaring faults; but he did much to salvage the truths they contained. To some extent, especially in his treatment of the monetary mechanism of international trade, he rediscovered Thornton’s line, and here and there he improved upon it. There are but two qualifications to be added to this appraisal of a considerable achievement that, had it been better understood, might have been instrumental in bringing about a new epoch of monetary analysis. 15 First, 13 For a history and discussion of this income approach, see primarily Marget, op. cit. vol. I, ch. 12. 14 In fact, Wicksell, in the preface to his Geldzins und Güterpreise (1898), was able to say that ‘a closer study of the writings of Tooke and his followers’ had convinced him ‘that there really was no theory of money other than the quantity theory and that, if the latter was wrong, we actually have no theory of money at all.’ This means that one of the men who were most competent to judge refused to consider Tooke’s approach as an acceptable alternative to Ricardo’s. I confess that I cannot understand such overstatement in a writer of Wicksell’s competence and fairness. But he did no more than overstate a truth. 15 So far as the general theory of money and monetary policy are concerned, the non-English work of the period was little more than the reflex of the English work, though a fuller exposition would have to note a few minor contributions. J.B.Say’s theory of money is not one of his strong points. But he was one of the first authors to identify—or, if the reader prefers, to confuse—the velocity of circulation of money and of goods. If, as was natural for a Frenchman—the debacle of the assignats having occurred only a decade before—he noticed the phenomenon characteristic of wild inflation, namely, that everyone attempts to get rid of money, which in consequence acquires an abnormal Money, credit, and cycles 679 though his retention of the theorem that an increase in money will, ceteris paribus, raise prices in the same proportion (the property peculiar to money) is all right when hedged in as he hedged it in, he also retained the erroneous Ricardian doctrine that variations in quantity of money and variations in physical volume of output have nothing to do with one another and will never coincide except by chance. Second, this denial of the possibility of ‘monetary stimulation’ is but the most important instance of the narrow views on the ideas of monetary management that emerged in the twenties and thirties of the nineteenth century. These must now be briefly noticed. 16 Even before the passing of Peel’s Resumption Bill (1819) or the actual resumptiòns of specie payments by the Bank of England (1821), many people voiced misgivings about the possible consequences of this step, which was bound to mean a jolt and might mean more than a jolt. When people began to realize that they were in for a serious depression—which actually prevailed, with the exception of the spurts of 1817 and 1824, from 1815 to 1830 and (after the upswing that set in about 1830) resumed from 1836 on—they put, as we have seen, all the blame on the factor that was most obvious on the surface, resumption, and the way in which it was carried into effect by the Bank of England. Politicians were relatively reasonable—the spokesmen of the agrarian interest being the only group that, as a group, went to any unreasonable lengths in this respect. 17 But bankers, financiers, and economists ‘velocity,’ this would seem small merit had not the same phenomenon been ‘discovered’ again, with much complacency, by writers in the inflations during and after the First World War. Nevertheless, Say’s analysis of money is of interest to us because it shows that he was perfectly aware of people’s variable attitudes toward holding cash and thus may be adduced in support of our interpretation of Say’s law. Also, let us note in passing that Say was to be a strongly hostile critic of England’s return to gold at prewar parity which shows that he cannot have considered price level as a matter of indifference. The reader who wishes to know more about French monetary theory is referred to M.Chevalier’s volume, La Monnaie (1850), and to the relevant articles in the Dictionnaire d’économie politique (1853–4, ed. by Coquelin and Garnier). From the Italian literature on money, we shall notice only Ferrara’s piece on Corso forzato, 1868 (irredeemable legal-tender paper), though his Prefazioni and Lezioni also contain other contributions to the subject. The German literature was stronger on the theory of credit and banking than on the general theory of money. But there are some original points on paper money in Buquoy’s treatise. For the United States, it will suffice to mention E.Lord’s Principles of Currency and Banking (1829); George Tucker’s The Theory of Money and Banks Investigated (1839); and W.M.Gouge’s well- known Short History of Paper Money and Banking (1833)—none of which is particularly strong but all of which were typical performances so far as their theoretical sketches are concerned. 16 Only very few issues and names can be mentioned. For a fuller exposition, see, besides Viner, op. cit., R.S.Sayers, ‘The Question of the Standard, 1815–44,’ Economic History, A Supplement to the Economic Journal, February 1935, and ‘The Question of the Standard in the Eighteen-Fifties,’ ibid., January 1933, and authorities there referred to. 17 There is not space, nor is there any need in a history of analysis, to tell the story of ‘Squire’ Western—how he foamed, how he was ridiculed, how he became something History of economic analysis 680 inspired by the viewpoint of bankers and financiers, especially those who felt on the defensive owing to their previous sponsorship of the Bullion Report, had most of them no doubt whatever that the root of all evil was money and nothing else, in most cases not even troubling to establish what seemed so indubitable a diagnosis. Accordingly, they criticized resumption, or at least resumption at prewar parity, as untimely or altogether pointless, and they produced remedies and schemes of reform that ranged all the way from excluding gold from actual circulation and the insertion of silver into monetary reserves, through anticipations of the ‘commodity dollar’ to a managed paper currency that was to stabilize prices and employment. We know, of course, that history incessantly repeats itself. But it is amazing and perhaps a little sad to observe that economists, swayed by the prevailing humors of the hour, also repeat themselves and that, blissfully ignorant of their predecessors, they believe in each case that they are making unheard-of discoveries and building up a brand-new monetary science. However, there are some things to be gleaned from a history of analysis. 18 In the first place, the question of diagnosis was indeed neglected, but not entirely. As we should expect, Tooke shone in the discussion. He had the great merit of not being a monetary monomaniac, and his common sense and command of facts enabled him to analyze the decline of prices from 1814 to 1837 in a thoroughly sensible manner. His ‘six causes’ 19 —good har- of a tragi-comical figure. I cannot help feeling that some injustice has been done to that worthy. His argument would, if anything, have shown up favorably in the U.S. discussion on money, 1930–34. See, e.g., his Letter to the Earl of Liverpool (1826). 18 Ricardo was one of those who smarted under responsibility—real or imagined—for the recommendation of the Bullion Report and for resumption. The main justification for his refusal to share the responsibility for the latter in the form in which it was actually carried out is his Ingot Plan, which he first recommended as early as 1811 (High Price of Bullion…, 4th ed., Appendix). Essentially, the plan proposed is the same as the system that England adopted on her return to the gold standard in 1925: the Bank was to be ‘obliged to purchase any quantity of gold that was offered them, not less than twenty ounces at 3l. 17s. per ounce, and to sell any quantity that might be demanded at 3l. 17s. 10½d.,’ export and import of bullion to be entirely free (Proposals for an Economical and Secure Currency, 1816). As has been pointed out already, this means a full and free gold system, except that no gold coins are used in internal hand-to-hand circulation. From the standpoint of the problem of how to mitigate the impact of resumption upon prices, the plan is relevant only by virtue of the fact that the Bank, if it did not have to provide gold for internal circulation, would have needed a smaller gold stock than if part of its notes were to be replaced by coins. Since the writers who blamed the depression on resumption were soon driven back to asserting that the cause of all the trouble was that the Bank, by its purchases of gold, had caused an international deflation—‘raised the value of gold’—policy according to Ricardo’s plan would in fact have met the chief objection to resumption. The argument itself about the Bank’s having ‘raised the value of gold’ cannot be discussed here. For details of Ricardo’s plan and its history, the reader is referred to James Bonar’s article, ‘Ricardo’s Ingot Plan, a Centenary Tribute,’ Economic Journal, September 1923. 19 History of Prices, vol. II, pp. 348–9. Money, credit, and cycles 681 . width of comprehension and analytic power are concerned. Three of them are of the first order of importance for the history of monetary analysis. The first is the treatment of the ‘rapidity of. a history of analysis, to tell the story of ‘Squire’ Western—how he foamed, how he was ridiculed, how he became something History of economic analysis 680 inspired by the viewpoint of. definition of Quantity of Money an author adopts. 12 This may be relaxed by inserting the word ‘normally.’ History of economic analysis 672 quantity theory, exactly as he did in matters of his