In order to deal with the situation in which paper notes circulated, it was important to try to implement the same principles, reducing their circulation when prices were rising, and increasing it when they prices were falling.
“Ricardo's wrong assumption that gold is simply specie and that consequently the whole of the imported gold is used to augment the money in circulation thus causing prices to rise, and that the whole of the gold exported represents a decrease in the amount of specie and thus causes prices to fall – this theoretical assumption is now turned into a practical experiment by making the amount of specie in circulation correspond always to the quantity of gold in the country. Lord Overstone (Jones Lloyd, the banker), Colonel Torrens, Norman, Clay, Arbuthnot and numerous other writers known in England as the “currency school” have not only preached this doctrine, but have made it the basis of the present English and Scottish banking legislation by means of Sir Robert Peel's Bank Acts of 1844 and 1845.” (p 184-5)
These same arguments form the basis of support for The Gold Standard.
“Ricardo, who declared that paper money is the most perfect form of money, was thus to become the prophet of the bullionists.” (p 185)
Alan Greenspan, as Chairman of the Federal Reserve, made this journey in the opposite direction!
Marx concludes by examining the work of Thomas Tooke.
“Tooke derives his principles not from some theory or other but from a scrupulous analysis of the history of commodity-prices from 1793 to 1856.” (p 186)
Tooke began as an adherent of Ricardo's ideas, but his research necessarily led him away from Ricardo's theory, and back towards the ideas previously developed by Steuart, though he was unaware of Steuart's writing. Contrary to Ricardo, and the ideas of Overstone et al, codified in the Bank Act, his research,
“compelled Tooke to recognise that the direct correlation between prices and the quantity of currency presupposed by this theory is purely imaginary, that increases or decreases in the amount of currency when the value of precious metals remains constant are always the consequence, never the cause, of price variations, that altogether the circulation of money is merely a secondary movement and that, in addition to serving as medium of circulation, money performs various other functions in the real process of production.” (p 186)
Again, because, today, currency, in the form of money tokens is conflated with money, it is important to note that, whilst this is true in relation to metallic currency, and redeemable notes, it is not true in relation to fiat currency. Indeed, Marx notes that Tooke, along with his associates such as Newmarch, Wilson and Fullarton, themselves confuse money with currency, as well as money with capital. Marx deals with these distinctions, at length, in Capital III, from the testimonies of the above to Parliamentary Committees.
“When, for example, gold is sent abroad, then indeed capital is sent abroad, but this is also the case when iron, cotton, corn, in short when any commodity, is exported. Both are capital and the difference between them does not consist therefore in the fact that one is capital, but that one is money and the other commodity. The role of gold as international means of exchange is thus due not to the distinctive form it has as capital, but to the specific function it performs as money. Similarly when gold or bank-notes which take its place act as means of payment in domestic trade they are at the same time capital. But it would be impossible to use capital in the shape of commodities instead, as crises very strikingly demonstrate, for instance.” (p 186-7)
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