The Ricardian Legacy

One of the most recurrent features of Wicksell’s monetary theory cannot escape even the least careful reader: his ‘schizophrenia’ in treating the quantity theory of money, particularly the Ricardian monetary theory. As regards the former, in fact, he maintains on the one hand that ‘indeed, it is the only one which attempts in some degree to provide a rational explanation’ (Wicksell, 1898b, p. 50);1 and that it is ‘the only specific theory of the value of money which has been propounded, and perhaps the only one which can make any claim to real scientific importance’ (1906, p. 141). On the other, Wicksell tones down those statements by saying ‘under given conditions the Quantity Theory is capable of being correct’ (1898b, p. 38); and it is ‘theoretically valid so long as the assumption of ceteris paribus’ holds (1898b, p. 42); and he goes so far as saying, at the same time, that it is based on ‘assumptions that unfortunately have little relation to practice, and in some respect none whatever’ (1898b, p. 41) and gives rise to ‘too many objections, as pointed out by later writers, to be accepted without modification’ (1898b, p. xxxiii). In addition: That a large and a small quantity of money can serve the same purposes of turnover if commodity prices rise or fall proportionately to the quantity is one thing. It is another thing to show why such a change of price must always follow a change in the quantity of money and to describe what happens. (Wicksell, 1906, p. 160)