IDEAS home Printed from https://ideas.repec.org/p/pra/mprapa/112887.html

Some notes on Ricardo's analysis of the convergence process of the market rate of interest to the natural rate

Author

Listed:
  • Ciccone, Michele

Abstract

This paper aims to be a preliminary critical discussion about one of the main accepted results of Ricardo’s theory of money and interest, i.e., that the ‘natural’ rate of interest is determined by the profit rate. It will be argued that some logical inconsistencies seem to affect Ricardo’s representation of the tendency of the market rate of interest to the natural rate, with the latter ultimately determined by the rate of profits. According to Ricardo, exogenous changes in the supply of, or demand for money generate short-run changes of the money-prices ratio and the market interest rate, and permanent changes in the price level play the role of bringing them back to their natural values (the natural rate of interest being taken as a fraction of the natural profit rate). We will try to show that the convergence process envisaged by Ricardo seems to be not free from some critical considerations about its internal coherence if one takes into due account what he conceives to be the specific inducement for the public to borrow a larger quantity of money at a lower interest rate—namely, an above normal difference between profit rate and interest rate, together with the behavior of the banking system and with the main institutional features of a monetary system.

Suggested Citation

  • Ciccone, Michele, 2022. "Some notes on Ricardo's analysis of the convergence process of the market rate of interest to the natural rate," MPRA Paper 112887, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:112887
    as

    Download full text from publisher

    File URL: https://mpra.ub.uni-muenchen.de/112887/1/MPRA_paper_112887.pdf
    File Function: original version
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Blaug,Mark, 1997. "Economic Theory in Retrospect," Cambridge Books, Cambridge University Press, number 9780521577014, November.
    2. Heinz D. Kurz & Neri Salvadori (ed.), 1998. "The Elgar Companion to Classical Economics," Books, Edward Elgar Publishing, volume 0, number 851.
    3. R. S. Sayers, 1953. "Ricardo's Views on Monetary Questions," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 67(1), pages 30-49.
    4. Bruna Ingrao & Claudio Sardoni, 2019. "Banks and Finance in Modern Macroeconomics," Books, Edward Elgar Publishing, number 17355.
    5. Maria Cristina Marcuzzo, 2024. "Ricardo’s Theory of Money Matters," Palgrave Studies in the History of Economic Thought, in: Economic Theories, Protagonists and Facts, chapter 0, pages 81-101, Palgrave Macmillan.
    6. Stirati, Antonella, 1992. "Unemployment, Institutions and the Living Standard in the Classical Theory of Wages," Contributions to Political Economy, Cambridge Political Economy Society, vol. 11(0), pages 41-66.
    7. Garegnani, Pierangelo, 1979. "Notes on Consumption, Investment and Effective Demand: A Reply to Joan Robinson," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 3(2), pages 181-187, June.
    8. Arnon,Arie, 2011. "Monetary Theory and Policy from Hume and Smith to Wicksell," Cambridge Books, Cambridge University Press, number 9780521191135, November.
    9. Heinz D. Kurz & Neri Salvadori (ed.), 2015. "The Elgar Companion to David Ricardo," Books, Edward Elgar Publishing, number 13754.
    10. Guglielmo Chiodi, 1991. "Wicksell’s Monetary Theory," Palgrave Macmillan Books, Palgrave Macmillan, number 978-1-349-12155-7, October.
    11. Wicksell, Knut, 1907. "The Influence of the Rate of Interest on Prices," History of Economic Thought Articles, McMaster University Archive for the History of Economic Thought, vol. 17, pages 213-220.
    12. Pierangelo Garegnani, 2024. "Notes on Consumption, Investment and Effective Demand: II," Springer Studies in the History of Economic Thought, in: Roberto Ciccone (ed.), Capital Theory, the Surplus Approach, and Effective Demand, pages 411-434, Springer.
    13. Smith, Matthew, 1996. "A Monetary Explanation of Distribution in a 'Gold Money Economy.'," Contributions to Political Economy, Cambridge Political Economy Society, vol. 15(0), pages 33-61.
    14. Pierangelo Garegnani, 2024. "The Classical Theory of Wages and the Role of Demand Schedules in the Determination of Relative Prices," Springer Studies in the History of Economic Thought, in: Roberto Ciccone (ed.), Capital Theory, the Surplus Approach, and Effective Demand, pages 297-303, Springer.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Michele Ciccone, 2023. "On the tendency of the market rate of interest to the natural rate in Ricardo’s analysis: some critical considerations," Bulletin of Political Economy, Bulletin of Political Economy, vol. 17(2), pages 149-176, December.
    2. Neri Salvadori & Rodolfo Signorino, 2014. "Adam Smith on Monopoly Theory. Making good a lacuna," Scottish Journal of Political Economy, Scottish Economic Society, vol. 61(2), pages 178-195, May.
    3. Costabile, Lilia, 2022. "Commodity money, natural values, and central banking in Ricardo," Structural Change and Economic Dynamics, Elsevier, vol. 63(C), pages 104-111.
    4. Antonella Stirati, 2022. "Alcune note sul contributo di Garegnani all'analisi economica (Some notes on Garegnani's contribution to economic analysis)," Moneta e Credito, Economia civile, vol. 75(299), pages 251-265.
    5. Fontanari, Claudia & Levrero, Enrico Sergio & Romaniello, Davide, 2024. "A composite index for workers’ bargaining power and the inflation rate in the United States, 1960–2018," Structural Change and Economic Dynamics, Elsevier, vol. 70(C), pages 682-698.
    6. Enrico Sergio Levrero & Giacomo Sbrenna, 2022. "Some Factors Affecting US Capital Profitability over the Last Decades," Bulletin of Political Economy, Bulletin of Political Economy, vol. 16(2), pages 77-101, December.
    7. A. Asimakopulos, 1982. "Keynes et Sraffa," L'Actualité Economique, Société Canadienne de Science Economique, vol. 58(1), pages 87-94.
    8. Ghislain Deleplace, 2022. "“Storm in a Teacup? The Impact of War on the English Monetary System and Thought (1797-1821)”," Post-Print hal-04429477, HAL.
    9. Cucciniello, Maria Chiara & Deleidi, Matteo & Levrero, Enrico Sergio, 2022. "The cost channel of monetary policy: The case of the United States in the period 1959–2018," Structural Change and Economic Dynamics, Elsevier, vol. 61(C), pages 409-433.
    10. Madarász, Aladár, 2018. "A "túl elméleti" tőzsdeügynök: David Ricardo és az Alapelvek kétszáz éve ["Too theoretical" a stockjobber: 200 years of David Ricardo and his principles]," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(5), pages 449-483.
    11. Ariel Dvoskin & Germán David Feldman & Guido Ianni, 2020. "New‐structuralist exchange‐rate policy and the pattern of specialization in Latin American countries," Metroeconomica, Wiley Blackwell, vol. 71(1), pages 22-48, February.
    12. Ariel Dvoskin & Emiliano Libman, 2024. "On the Separation between Prices and Quantities. A Note on the Interest Rate as an Artifact of Self-Validating Beliefs," Centro Sraffa Working Papers CSWP68, Centro di Ricerche e Documentazione 'Piero Sraffa'.
    13. Emiliano Brancaccio & Francesco Saraceno, 2017. "Evolutions and Contradictions in Mainstream Macroeconomics," Sciences Po Economics Publications (main) hal-03458622, HAL.
    14. Matias Vernengo, 2022. "Oltre l'economia eterodossa volgare: una nota sull'eredita' di Pierangelo Garegnani (1930-2011) (Beyond vulgar heterodox economics: a note on the legacy of Pierangelo Garegnani (1930-2011))," Moneta e Credito, Economia civile, vol. 75(299), pages 339-351.
    15. Matías Vernengo, 2023. "Was Keynes a Liberal or a Socialist?," FMM Working Paper 94-2023, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
    16. Tony Aspromourgos, 2019. "The Past and Future of Keynesian Economics: A Review Essay," History of Economics Review, Taylor & Francis Journals, vol. 72(1), pages 59-78, January.
    17. Anwar Shaikh, 2012. "Rethinking Microeconomics: A Proposed Reconstruction," Working Papers 1206, New School for Social Research, Department of Economics.
    18. repec:spo:wpmain:info:hdl:2441/1hlgq13piu8cirvmd44v0hs2v1 is not listed on IDEAS
    19. Machado, Pedro S. & Trigg, Andrew B., 2021. "On absolute and comparative advantage in international trade: A Pasinetti pure labour approach," Structural Change and Economic Dynamics, Elsevier, vol. 59(C), pages 375-383.
    20. Roberto Ciccone, 2021. "A note on capital obsolescence (and underutilization) in classical and neoclassical normal positions," Bulletin of Political Economy, Bulletin of Political Economy, vol. 15(2), pages 123-146, December.
    21. Peter Docherty, 2012. "Keynes’s General Theory, the Quantity Theory of Money and Monetary Policy," Chapters, in: Thomas Cate (ed.), Keynes’s General Theory, chapter 6, Edward Elgar Publishing.

    More about this item

    Keywords

    ;
    ;
    ;

    JEL classification:

    • B0 - Schools of Economic Thought and Methodology - - General
    • B31 - Schools of Economic Thought and Methodology - - History of Economic Thought: Individuals - - - Individuals
    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:112887. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Joachim Winter (email available below). General contact details of provider: https://edirc.repec.org/data/vfmunde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.