David Hume: The Classical Theory of Money

This chapter discusses David Hume's background and contributions to macroeconomics. Hume's book, Political Discourses, consists mainly of essays—seven out of the twelve—on economic issues. Hume had strong views on the neutrality of money, particularly in the long term. He challenged the view that increases in the money supply could influence output in the long term. He rejected the mercantilist view that the accumulation of bullion was an appropriate policy for the nation. Instead, he outlined the self-adjusting price specie flow mechanism to show how a nation could not accumulate excessive...

This chapter discusses David Hume's background and contributions to macroeconomics. Hume's book, Political Discourses, consists mainly of essays—seven out of the twelve—on economic issues. Hume had strong views on the neutrality of money, particularly in the long term. He challenged the view that increases in the money supply could influence output in the long term. He rejected the mercantilist view that the accumulation of bullion was an appropriate policy for the nation. Instead, he outlined the self-adjusting price specie flow mechanism to show how a nation could not accumulate excessive stocks of gold and silver. He disagreed with the view that the rate of interest was determined by the demand and supply of money. In his final writing on economics, “Of the Jealousy of Trade”, Hume argued strongly in favor of free international trade. The core of theory that he constructed in some of the central essays of the Political Discourses is now regarded by many writers as the core of pre-monetarist theorizing.