"In stating the principles which regulate exchangeable value and price, we should carefully distinguish between those variations which belong to the commodity itself, and those which are occasioned by a variation in the medium in which value is estimated, or price expressed"
About this Quote
Ricardo urges a careful separation between two forces that move prices. One resides in the commodity itself: the conditions of production, the amount of labor embodied, the scarcity or abundance that affects its exchangeable value relative to other goods. The other lies in the measuring rod, money, whose own value can vary. If the yardstick stretches or shrinks, the numbers printed on price tags will change even when nothing real about the goods has altered.
This distinction sits at the heart of classical political economy. Ricardo held that the relative value of commodities is rooted largely in the labor required to produce them, modified by factors like capital intensity and time. A bumper harvest lowers the real value of wheat because less labor and fewer resources are needed per bushel. Technological improvement in spinning reduces the real value of textiles. These are variations belonging to the commodity.
By contrast, a depreciation of the currency lifts money prices across the board without increasing the real worth of each article. During the Bullion Controversy and the Bank Restriction period in Britain, paper money lost value relative to gold, and prices rose. Ricardo argued that analysts and policymakers must not confuse such nominal movements with changes in intrinsic or relative value. Failure to disentangle the two leads to errors in assessing wages, profits, and the distribution of income, and to misguided responses to inflation.
The lesson is method as much as doctrine. To judge whether a commodity has become more or less valuable, look at its power to command other commodities, not merely its money price. To judge the influence of monetary conditions, examine broad, simultaneous price movements and the value of the monetary standard itself. Modern economics keeps this insight alive with the distinction between real and nominal magnitudes, the use of price indexes and deflators, and the practice of measuring changes in purchasing power rather than just changes in dollars and cents.
This distinction sits at the heart of classical political economy. Ricardo held that the relative value of commodities is rooted largely in the labor required to produce them, modified by factors like capital intensity and time. A bumper harvest lowers the real value of wheat because less labor and fewer resources are needed per bushel. Technological improvement in spinning reduces the real value of textiles. These are variations belonging to the commodity.
By contrast, a depreciation of the currency lifts money prices across the board without increasing the real worth of each article. During the Bullion Controversy and the Bank Restriction period in Britain, paper money lost value relative to gold, and prices rose. Ricardo argued that analysts and policymakers must not confuse such nominal movements with changes in intrinsic or relative value. Failure to disentangle the two leads to errors in assessing wages, profits, and the distribution of income, and to misguided responses to inflation.
The lesson is method as much as doctrine. To judge whether a commodity has become more or less valuable, look at its power to command other commodities, not merely its money price. To judge the influence of monetary conditions, examine broad, simultaneous price movements and the value of the monetary standard itself. Modern economics keeps this insight alive with the distinction between real and nominal magnitudes, the use of price indexes and deflators, and the practice of measuring changes in purchasing power rather than just changes in dollars and cents.
Quote Details
| Topic | Money |
|---|---|
| Source | On the Principles of Political Economy and Taxation — David Ricardo (1817). Chapter I: "On Value" (distinguishing variations in the commodity vs variations in the medium in which value is estimated). |
More Quotes by David
Add to List
