Fifteen years after the Global Financial Crisis: Recessions and Business Cycles in the History of Economic Thought

Ricardo, Senior and Stirling on money and international values

Tabuchi Taichi, Doshisha University

This paper gives a critical review on how the theory of money and international values was elaborated by Nassau Senior and Patrick James Stirling after David Ricardo, focusing their arguments on value and distribution of precious metals. First, we will briefly reaffirm that Ricardo, in his Principles (1817), emphasized that it is natural price (namely ‘money cost of production’) which regulates not only domestic but international values, although it is a prevailing interpretation since John Stuart Mill that terms of trade determination was left unsolved in Ricardo. Then we will show that Senior, in his Free Trade and Retaliation (1843), criticized Robert Torrens’s view, arguing that the cost-of-production theory is valid both in domestic and international exchanges, in line with Ricardo. It is notable that Senior already pointed out the critical issue underlying Mill’s reversion in his Essays on Some Unsettled Questions (1844), that is, the question of the relevance of an analysis confined to two-country two-commodity case. Senior, in his Three Lectures on the Cost of Obtaining Money (1830), elucidated that it is labour productivity of a country’s exporting industry that determines what amount of precious metals its national labour can be expressed in, and that by the differentials of labour productivity in exporting industry, we can determine uniquely the international values between trading countries and explain why prices and nominal wages are higher in more developed countries. Thirdly, we will give a reappraisal of Stirling’s theory of money and international values in his The Australian and Californian Gold Discoveries (1853). Stirling, along with Senior’s arguments, developed an international value theory in multi-country multi-commodity case, and made a detailed study on the effects of the gold discoveries in Australia and California on that time based on the cost-of-production theory of international values including precious metals. Lastly, we will conclude that the theory of money and international values elaborated by Senior and Stirling could be regarded as a deserved successor of Ricardo’s cost-of-production theory of international values, although they had harsh criticism against Ricardo’s theory on wages and profits and especially his explanation of value and distribution of precious metals.

Area: Eshet Conference

Keywords: international trade, money, precious metals, the cost-of-production theory of value, Ricardo, Senior, Stirling, John Stuart Mill

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