Gold

Ricardo’s quantity approach stated the existence of a causal and direct relation between money supply and the level of prices, and denied that money could have real effects. A limit to this theory was the belief that gold flows were only signs of monetary problems and not real problems. Ricardo was convinced that rules could be effective in checking abuses and in maintaining monetary order. He undervalued the need for an active monetary policy, because of his strong belief in a self-regulating monetary economy without considering, for example, the possibility of a confidence crises underlined by Thornton. Ricardo was a winner in the theoretical approach even post-mortem with the Bank Charter Act of 1844. However, in practice, the Bank of England in the nineteenth century played an increasingly active role. According to certain streams of thought, the history of monetary systems based on facts and political choices and not on theory, pushed gold out of the international (and domestic) monetary systems. This debate went on for centuries but rarely with the degree of sophistication found in the Ricardian analysis.