The Nature of Money and the Theory of International Trade: Thornton and Ricardo

Authors

Isabella M. Weber, Economics Department, University of Massachusetts AmherstFollow

Working Paper Number

2021-18

Publication Date

2021

Abstract

A rich recent literature reinvestigates the nature of money, but little attention has been paid to the ramifications of the ways in which we theorize money for the theory of international trade. This paper examines the logical relationship between the neutrality of money and self-balancing trade based on Henry Thornton and David Ricardo as two foundational contributions to credit and commodity money theories respectively. I show that both authors theorize trade as self-balancing whenever money is conceptualized as neutral. I distinguish two notions of the neutrality of money: ex ante and ex post neutrality. In Thornton’s Paper Credit money is not neutral ex ante: there can be temporary trade imbalances. But in the long-run money is neutral ex post and international trade boils down to self-balancing barter. In Ricardo money is neutral both ex ante and ex post and international trade is always balanced unless central bank policy undermines monetary neutrality.

DOI

https://doi.org/10.7275/npqq-v378

Creative Commons License

This work is licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 3.0 License.

License

UMass Amherst Open Access Policy

Recommended Citation

Weber, Isabella M., "The Nature of Money and the Theory of International Trade: Thornton and Ricardo" (2021). Economics Department Working Paper Series. 315.
https://doi.org/10.7275/npqq-v378