The Place of Money in the Theory of Development

  • Lord Robbins


I have now passed in review the main features of the history of thought in regard to what the classical economists would have called productive factors and their organisation in the process of economic development. But so far I have said nothing, save incidentally, about money and credit and their functions in this respect. This clearly is an omission which must be remedied. The part played by money and its vicissitudes in promoting or retarding economic development has probably occupied more space in the relevant literature than any other single subject, indeed perhaps more than all the other single subjects put together. Needless to say, I shall not attempt to cover this material in all its bewildering variety. My aim is only to exhibit the main issues in the broadest historical perspective. I shall deal first with thought concerning the qualitative functions of money and monetary institutions in regard to development, and then with discussions of the effect of variations in its quantity.


Precious Metal Money Supply Full Employment Classical Economist Cash Payment 


Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.


  1. 1.
    Aristotle, Politics, trs. Welldon, 2nd ed. (1888) p. 23.Google Scholar
  2. 1.
    On the evolution of thought in this connection, see A. E. Monroe: Monetary Theory before Adam Smith (Cambridge, Mass., 1923) especially parts i and ii.CrossRefGoogle Scholar
  3. 2.
    John Law, Money and Trade Considered (1750) pp. 6–7.Google Scholar
  4. 3.
    Smith, The Wealth of Nations, pp. 22–6; Mill, Principles of Political Economy, p. 502. The locus classicus of all this is usually supposed to be Joseph Harris, An Essay upon Money and Coins (1757–8) pp. 34–5. But Law’s is clearly the superior statement.Google Scholar
  5. 1.
    Léon Walras, Éléments d’Économie Pure (1926) pp. 115–21.Google Scholar
  6. See also Wicksell, Lectures on Political Economy (1934–5) vol. i, pp. 63–8, where this important theorem is expanded with considerably greater expository economy.Google Scholar
  7. 2.
    Galiani, Della Moneta Libri Cinque (Napoli, 1750) pp. 89–95.Google Scholar
  8. 1.
    David Hume, Writings on Economics, ed. Rotwein (Edinburgh, 1955) pp. 70. All further references to Hume’s economic essays are to this edition.Google Scholar
  9. 2.
    Ibid., pp. 67–8. There is a very clear anticipation of this point of view in the remarkable tract by Isaac Gervaise, The System or Theory of the Trade of the World, discovered by Professor Viner and edited by Professor J. M. Letiche in the Johns Hopkins Series, A Reprint of Economic Tracts (Baltimore, 1954 ).Google Scholar
  10. 1.
    See the masterly chapters (I and II) in Viner, Studies in the Theory of International Trade (1937).Google Scholar
  11. 2.
    Op. cit., reprinted by McCulloch in his Select Collection of Scarce and Valuable Tracts on Money (Political Economy Club, 1856) pp. 74–5.Google Scholar
  12. 1.
    Law, Money and Trade Considered (1750) p. 107. The eccentric punctuation follows the original.Google Scholar
  13. 2.
    Ibid., p. 311. For a significant comparison of the ideas of Law and Cantillon in this respect, Charles Rist, Histoire des Doctrines relatives au Crédit et is la Monnaie depuis John Law jusqu’à nos Jours (Paris, 1938) pp. 20–57 should be consulted.Google Scholar
  14. 2.
    Harris, An Essay upon Money and Coins (1757–8) p. 80, also reprinted in A Select Collection of Scarce and Valuable Tracts on Money (Political Economy Club, 1856).Google Scholar
  15. 2.
    Smith, Lectures on Justice, Police, Revenue and Arms, ed. Cannan (1896) p. 597.Google Scholar
  16. 3.
    Keynes, The General Theory of Employment, Interest, and Money (1936) p. 32.Google Scholar
  17. 1.
    Law, Money and Trade Considered (1750) pp. 20–1.Google Scholar
  18. 2.
    For Sir William Petty’s calculation see his Quantulumcunque concerning Money, Question 25, reprinted in The Economic Writings of Sir William Petty, ed. Hull (1899); for Cantillon’s see his Essai sur la Nature du Commerce, pp. 131–49.Google Scholar
  19. 2.
    See Cassel, Theory of Social Economy, trans. McCabe (1923) vol. ii, p. 450Google Scholar
  20. Milton Friedman, A Program for Monetary Stability (New York, 1960) pp. 77–99.Google Scholar
  21. 3.
    Smith, op. cit., vol. i, p. 287. For a detailed history of the so-called ‘ real bills’ doctrine see Lloyd Mints, A History of Banking Theory in Great Britain and the United States (Chicago, 1945 )Google Scholar
  22. F. W. Fetter, The Development of British Monetary Orthodoxy (Harvard, 1965).Google Scholar
  23. 1.
    Henry Thornton, Inquiry into the Nature and Effects of Paper Credit, ed. Hayek (1939) p. 254.Google Scholar
  24. 2.
    See Thomas Tooke, Inquiry into a Currency Principle, 2nd ed. (1844) p. 66;Google Scholar
  25. John Fullarton, On the Regulation of Currencies (1844) PP. 64–9.Google Scholar
  26. 1.
    Torrens, The Principles and Practical Operation of Sir Robert Peel’s Act of 1844 Explained and Defended, 3rd ed. (1858) pp. 203–36, 313–24.Google Scholar
  27. 3.
    W. S. Jevons, A Serious Fall in the Value of Gold and its Effects (1863) p. 62.Google Scholar
  28. 1.
    Marshall, Official Papers (1926) p. 19.Google Scholar
  29. 1.
    F. A. Hayek, Prices and Production (2nd ed.) (1935) ch. 1, Profits, Interest and Investment (1939), pp. 183–97.Google Scholar
  30. 2.
    J. Viner, Studies in the Theory of International Trade (1937) pp. 189–91.Google Scholar
  31. 3.
    Bentham, Works, ed. Bowring (1843) vol. iii, pp. 44 seq.Google Scholar
  32. 2.
    Malthus, ‘ On Depreciation of paper Currency’ Edinburgh Review, xvii(1811) p. 363.Google Scholar
  33. Earl of Lauderdale, Further considerations on the State of the Currency (1812) pp. 96–7.Google Scholar
  34. Tooke, Considerations on the State of the Currency, 2nd ed. (1826) pp. 23–4.Google Scholar
  35. Torrens, Essay on Money and Paper Currency (1812) pp. 33–4.Google Scholar
  36. Joplin, An Illustration of Mr. Joplin’s Views on the Currency (1825) pp. 28 ff.; Views on the Currency (1828) p. 146. Since Joplin’s tracts are so rare and inaccessible, a quotation from this last may not be inappropriate: The notes of the bank thus issued always represent the savings of income, or answer the same purpose. If the issues of the bank are not increased by any loan it makes at interest, an equal amount of money must have been previously saved out of income, and paid into the bank, in which case, the party borrows the income previously saved; but if not, and the issues of the bank are increased by the loan, prices rise, and the party who has borrowed the money obtains value for it by depriving the holders of the money in previous circulation, of a proportionate power of purchasing commodities. An economy is thus created, though a forced economy, but it answers all the purpose of a voluntary one. It makes no difference to the party borrowing the money, whether the value he obtains for it, be previously and voluntarily saved, or saved by the power of consumption on the part of those who held the money in previous circulation, being limited. Hence, when the bank lends money at interest, it always lends the savings of income; it lends savings which either have been, or will be made.’Google Scholar

Copyright information

© Lord Robbins 1968

Authors and Affiliations

  • Lord Robbins

There are no affiliations available

Personalised recommendations