JSP Forum 7.1
“David Hume on Economics: Contemporary prophet versus man of his times”
The featured article is
DAVID HUME ON MONETARY POLICY: A RETROSPECTIVE APPROACH
By MARIA PIA PAGANELLI, Yeshiva University
Abstract
Monetary policy is a modern idea of which David Hume is generally considered a precursor. Moreover, thanks to Milton Friedman and Robert Lucas, he is often presented as one of the first and most illustrious endorser of monetarism. This paper argues against this view, and in agreement with Joseph Schumpeter, that Hume's contribution to economics, while not insignificant, cannot claim any real novelties. It offers an interpretation of Hume as a descendant of a pre-modern understanding of money rather than a forerunner of modern monetary ideas, and as a scholar exposing common ideas of his time rather than a prophet of economic theories developed centuries later, and argues that there is little in Hume that resembles today's monetary policy prescriptions.
Read the full article
Comment 1
Neil McArthur, University of Manitoba
In her impressive article on David Hume’s monetary policy, Professor Paganelli shows us a thinker who is apparently very distant from our own time. At the foundation of Hume’s economic ideas is his conviction that prosperity is created through “industry” – in other words, through the productive efforts of the labouring classes. He believes that the only way to encourage industry in the people is to keep prices low, so that they can consume commodities, since it is the hope of such consumption that motivates them to work. And, as Professor Paganelli shows, Hume thinks the only way to keep prices low is to encourage private hoarding of precious metals. I find Professor Paganelli’s account of Hume’s monetary theory lucid and persuasive, as I do her indictment of it. Recent upheavals in the international financial system notwithstanding, I would not quarrel with her suggestion that we do not, contrary to Hume’s recommendation, amass private stocks of gold and silver. Misguided as Hume’s argument may seem, however, I believe it is useful to consider it within the context of his broader vision of a world dominated by commerce and trade, a vision that his economic writings were designed to promote. This vision reveals Hume to be a thinker belonging in many important ways to the modern world, however outdated his ideas on specific aspects of economic theory.Professor Paganelli writes, summarising Hume’s view: “Commerce exposes ‘uncultivated people’ to new comforts . . . . Only commerce can generate incentives to consume more and, therefore, produce more in order to obtain, via exchange, the newly discovered ‘pleasures’ and 'delicacies’.” This view will strike most modern readers as uncontroversial, but it would have seemed to his contemporaries to be provocative and even radical – at least as an argument in favour of greater commerce. The majority view during Hume’s time was that the labouring classes should be encouraged to consume nothing beyond what was immediately necessary for their survival – no “luxuries” in other words – lest they be made lazy and effeminate by them, and their industry disappear. The desire for luxury was considered a great moral evil. As Mandeville puts it in his Fable of the Bees: "It is a receiv’d Notion, that Luxury is as destructive to the wealth of the whole Body Politic, as it is to that of every individual Person who is guilty of it, and that a National Frugality enriches a Country in the same manner as that which is less general increases the Estates of private Families . . . . What is laid to the Charge of Luxury besides, is, that it increases Avarice and Rapine . . . . And lastly, that it effeminates and enervates the People, by which the Nations become an easy Prey to the first Invaders." (Bernard Mandeville, Fable of the Bees, ed. F.B. Kaye, Indianapolis, 1988, 1: 108; 1: 115.)Because it promotes luxury, commerce was to be looked upon with suspicion, and the state called upon to impose various kinds of restrictions upon it. Hume is a passionate and eloquent defender of the opposite view, that far from being an evil in itself, the ability to consume luxury goods actually leads to an increase in industry, by stimulating the desire for more such consumption. He wanted to see prices decrease because he thought that this was the best way to allow people to have access to such goods. Hume thus saw commerce as a benign force, and thought that its promotion should be the goal of sound public policy. He was a defender of free trade and a critic of the prevailing mercantilist views that held international commerce to be a zero-sum game. He thought that a world of open commerce between people and between nations would be a more peaceful, civilised and happier one. Professor Paganelli has given us a useful and inciteful critique of Hume’s pre-modern, and frankly misguided, views on money. However, I think that her readers must be cautious in concluding more broadly that Hume is prey to a pre-modern understanding of economics rather than a forerunner of modern economic ideas. On numerous important topics, he certainly can be placed in the latter category. His economic writings as a whole can still be read with pleasure, and even perhaps with profit.
Comment 2 Robert W. Dimand and Calvin Hayes.
Maria Pia Paganelli’s paper begins with a clear, systematic, logically clear statement of her main theses which are then well-documented. She refers to two major players in modern economics, Milton Friedman and Robert Lucas, both of whom see Hume as a forerunner of their views. She presents strong arguments to disassociate Hume’s views from their versions of monetary neutrality. She makes a convincing case that Humean deflationary solutions to depressions and recessions are not mainstream today. However her argument raises issues both historical and logical. The former relate to her views on intellectual history; the latter to the distinction between the quantity theory of money as a theory and monetarism as policy. Dealing with these problems would increase the credibility of her case. Modern monetary theorists such as the Nobel laureates Friedman and Lucas did not invoke David Hume as an endorser of the monetarist approach to monetary policy, since of course they were well aware that Hume wrote in the context of commodity money (gold and silver bullion and coin), a context in which a policy rule for the growth of the quantity of fiat money has no place. Monetary economists invoke Hume in connection with theory, not policy, and view him as the most illustrious of the early exponents of the quantity theory of money. Hume was not the first to argue that a change in the quantity of commodity money, such as the inflow of gold and especially silver into Europe from Mexico and Upper Peru in the Sixteenth Century, would ultimately change prices in the same proportion, with no lasting change in real economic activity. In this, he was preceded by Martin de Azpilcueta (Navarrus) in Salamanca in 1556 and by Jean Bodin in France in 1568. Hume’s analysis of how international monetary equilibrium is achieved, which has no counterpart in Azpilcueta or Bodin, was anticipated by Isaac Gervaise in 1720, but Gervaise was almost entirely unread and unmentioned until his rediscovery by Jacob Viner in 1935 (see the reprint of Gervaise with foreword by Viner and introduction by John Letiche in R. Dimand, ed., The Origins of International Economics, Vol. I, London and New York: Routledge, 2004). Hume was innovative in his discussion of how a once and for all change in the quantity of money would have a temporary effect on real economic activity, but no permanent effect, while a continuing series of increases in the quantity of money could have a continuing effect on real output (see Thomas M. Humphrey, “Of Hume, Thornton, the Quantity Theory, and the Phillips Curve,” Federal Reserve Bank of Richmond Economic Review, November/December 1982). Professor Paganelli (page 65) makes the qualification that Hume is often associated with “the theory of money neutrality, at least in the long run”, but Humphrey argues that even in the long run, Hume viewed only once and for all changes in the quantity of money as neutral, not a continuing rate of change. Humphrey argues that this non-neutrality of money prompted Adam Smith’s complaint, in his lectures, that “Mr. Hume’s reasoning is exceedingly ingenious. He seems, however, to have gone a little into the notion that public opulence consists in money.”Professor Paganelli “offers an interpretation of Hume as a descendent of a pre-modern understanding of money rather than as a forerunner of modern monetary ideas” and “argues that there is little in Hume that resembles today’s monetary policy prescriptions.” Without question, Hume was indeed a descendent of an existing understanding of money, one stretching across time from Aristotle to Cantillon. But that is in no way inconsistent with being a forerunner of modern monetary ideas. There is no dividing line in intellectual history between a distant, irrelevant past and a closer, relevant past that has no relationship to what came before. Innovation in monetary theory has not precluded links with earlier monetary ideas (see R. Dimand, “Monetary economics, history of,” The New Palgrave: A Dictionary of Economics, 2nd ed., London: Palgrave Macmillan, 2008). Certainly, today’s monetary policy prescriptions for economies with inconvertible paper money differ from what Hume wrote about a world of commodity money, for the same reason that they differ from what modern monetary theorists would prescribe for a regime of commodity money.Hume certainly did write harsh things about paper money in his essay “Of the Balance of Trade” in 1752, as Professor Paganelli emphasizes (pages 73-74). At that time, Hume fully rejected the desirability of fractional-reserve banking. However, in the sixth edition of his essay in 1764, Hume deleted the remark that “our darling projects of paper-credit are pernicious” and added two new paragraphs (on pages 318-319 of the 1985 Liberty Fund edition of Hume’s essays). In 1764, Hume acknowledged that “there are certain lights, in which this subject may be placed, so as to represent the advantages of paper-credit and banks to be superior to their disadvantages” and that bank credit, as provided by the banks of Edinburgh, is “one of the most ingenious ideas that has been executed in commerce ... As a man may find surety nearly to the amount of his substance, and his bank-credit is equivalent to ready money, a merchant does hereby in a manner coin his house, his household furniture, the goods in his warehouse, the foreign debts due to him, his ships at sea; and can, upon occasion, employ them all in payments, as if they were the current money of the country. If a man borrows a thousand pounds from a private hand, besides that it is not always to be found when required, he pays interest for it, whether he be using it or not: His bank-credit costs him nothing except during the very moment in which it is of serve to him: And the circumstance is of equal advantage as if had borrowed money at much lower interest.” Hume’s new acceptance of the “right use of paper-money”, issued by private banks and convertible on demand into metallic coin, with such metallic coin as the only legal tender, did not extend to government issues of paper money (and especially not to making paper money legal tender). In a letter to the Abbé Morellet on 10 July 1769, Hume held that the assemblies of the British colonies in North America had “issued paper without end, and thereby discredited the currency.” One possible reason why Hume turned his attention again to paper money in 1764, twelve years after the bulk of his writing on economics, was that, as secretary to the British ambassador in Paris (and subsequently as chargé d’affaires and Undersecretary of State), Hume was involved in negotiating the settlement of the paper money of New France (Canada), which Britain had conquered in the Seven Years War (see R. Dimand, “David Hume on Canadian Paper Money,” in Carl Wennerlind and Margaret Schabas, eds., David Hume’s Political Economy, London and New York: Routledge, 2008 – a shorter version of this paper appeared in the Journal of Money, Credit, and Banking, August 2005).Despite the foregoing remarks, there are very interesting ideas in the paper. The discussion of how Hume’s analysis of deflation differs from modern views is particularly novel and persuasive.
Robert Dimand teaches economics and Calvin Hayes teaches business ethics, both at Brock University, St. Catharines, Ontario L2S 3A1, Canada.
Author's response to Neil McArthur
Professor McArthur brings to light important aspects of David Hume that might easily have gone overlooked in my mild polemic with possible anachronistic interpretations of historical works on monetary policy. I completely agree with Professor McArthur when he says that Hume was, for his time, a radical defender of commerce and of the luxury that commerce brings. It is indeed through commerce, powered by our desire to gain luxury, that a society prospers. His defense of luxury, especially in “Of Refinement in the Arts” (originally titled “Of Luxury”), is innovative and radical for his time. Professor McArthur correctly points out that Hume’s claim about commerce and luxury may pass as uncontroversial if seen from a modern prospective. But when seen in context, the innovation in Hume’s reasoning stands out. I am grateful to Professor McArthur for strengthening my argument with such grace by pointing out the fundamental contribution of Hume in the luxury debate.
Author's response to Robert Dimand and Calvin Hayes
I am thankful to Professors Dimand and Hayes for their careful reading of my piece and their insightful comments. Their comments allow for a fuller view of Hume. First of all, I thank them for referring to the school of Salamanca and Jean Bodin, which I did not mention in the paper; for clarifying the marginal role of Isaac Gervasie, whom I mentioned extensively; and for elucidating the contribution of Thomas Humphrey, whose work I deeply admire and whom I cited, though highlighting a different aspect of his position. Professors Dimand and Hayes make three major points, all of which are well taken, and with all of which I find myself in agreement. First, that there is a difference between monetary theory and monetary policy. Second, that ideas can be both descendents of their predecessors and forerunners of their successors. And finally, that Hume was not always critical of the use of paper money but became favorable of its “right use.” I am grateful that Professors Dimand and Hayes brought to light the important distinction between theory and policy. I agree that Hume can be placed in an intellectual line that develops the quantity theory of money. But Hume is interested in monetary policy, not just in monetary theory. When he states that “the good policy of the magistrate is to keep it [money] still encreasing” he is suggesting a policy prescription. My enterprise in this paper is to try to understand what this policy is for Hume. I believe there are at least two ways to approach this question. One is to look at it with the eyes of the present, and the other is to look at it with the eyes of the past. If we try to understand what this “good policy” may be by using the tools and the knowledge of today, we may bring to light some relevant aspects while overshadowing others. If we try to understand what Hume may have meant, equipped only with the knowledge that Hume had, we may make mistakes by today’s standards, but we may see some aspects of what Hume considered a “good policy” that would otherwise go unnoticed. With this paper I try to contrast these two approaches, emphasizing looking at Hume as an end point rather than a starting point, ignoring our knowledge and focusing on his instead. This, as Professors Dimand and Hayes point out, does not preclude the possibility of Hume being a forerunner of modern monetary ideas. But by changing prospective, by turning around and looking at how Hume came from the past rather than how he led us into the future, hopefully we can see and learn things that we otherwise risk missing, even if not necessarily correct given our current knowledge. Finally, I am happy that Professors Dimand and Hayes mentioned the potential ambivalence in Hume’s dislike of paper money. I believe that Hume’s position on paper money is indeed complex. I hope to see more attention and more scholarship dedicated to this.
From Journal of Scottish Philosophy Forum 7.1 back to Journal of Scottish Philosophy
From Journal of Scottish Philosophy Forum 7.1 back to IASP homepage
The featured article is
DAVID HUME ON MONETARY POLICY: A RETROSPECTIVE APPROACH
By MARIA PIA PAGANELLI, Yeshiva University
Abstract
Monetary policy is a modern idea of which David Hume is generally considered a precursor. Moreover, thanks to Milton Friedman and Robert Lucas, he is often presented as one of the first and most illustrious endorser of monetarism. This paper argues against this view, and in agreement with Joseph Schumpeter, that Hume's contribution to economics, while not insignificant, cannot claim any real novelties. It offers an interpretation of Hume as a descendant of a pre-modern understanding of money rather than a forerunner of modern monetary ideas, and as a scholar exposing common ideas of his time rather than a prophet of economic theories developed centuries later, and argues that there is little in Hume that resembles today's monetary policy prescriptions.
Read the full article
Comment 1
Neil McArthur, University of Manitoba
In her impressive article on David Hume’s monetary policy, Professor Paganelli shows us a thinker who is apparently very distant from our own time. At the foundation of Hume’s economic ideas is his conviction that prosperity is created through “industry” – in other words, through the productive efforts of the labouring classes. He believes that the only way to encourage industry in the people is to keep prices low, so that they can consume commodities, since it is the hope of such consumption that motivates them to work. And, as Professor Paganelli shows, Hume thinks the only way to keep prices low is to encourage private hoarding of precious metals. I find Professor Paganelli’s account of Hume’s monetary theory lucid and persuasive, as I do her indictment of it. Recent upheavals in the international financial system notwithstanding, I would not quarrel with her suggestion that we do not, contrary to Hume’s recommendation, amass private stocks of gold and silver. Misguided as Hume’s argument may seem, however, I believe it is useful to consider it within the context of his broader vision of a world dominated by commerce and trade, a vision that his economic writings were designed to promote. This vision reveals Hume to be a thinker belonging in many important ways to the modern world, however outdated his ideas on specific aspects of economic theory.Professor Paganelli writes, summarising Hume’s view: “Commerce exposes ‘uncultivated people’ to new comforts . . . . Only commerce can generate incentives to consume more and, therefore, produce more in order to obtain, via exchange, the newly discovered ‘pleasures’ and 'delicacies’.” This view will strike most modern readers as uncontroversial, but it would have seemed to his contemporaries to be provocative and even radical – at least as an argument in favour of greater commerce. The majority view during Hume’s time was that the labouring classes should be encouraged to consume nothing beyond what was immediately necessary for their survival – no “luxuries” in other words – lest they be made lazy and effeminate by them, and their industry disappear. The desire for luxury was considered a great moral evil. As Mandeville puts it in his Fable of the Bees: "It is a receiv’d Notion, that Luxury is as destructive to the wealth of the whole Body Politic, as it is to that of every individual Person who is guilty of it, and that a National Frugality enriches a Country in the same manner as that which is less general increases the Estates of private Families . . . . What is laid to the Charge of Luxury besides, is, that it increases Avarice and Rapine . . . . And lastly, that it effeminates and enervates the People, by which the Nations become an easy Prey to the first Invaders." (Bernard Mandeville, Fable of the Bees, ed. F.B. Kaye, Indianapolis, 1988, 1: 108; 1: 115.)Because it promotes luxury, commerce was to be looked upon with suspicion, and the state called upon to impose various kinds of restrictions upon it. Hume is a passionate and eloquent defender of the opposite view, that far from being an evil in itself, the ability to consume luxury goods actually leads to an increase in industry, by stimulating the desire for more such consumption. He wanted to see prices decrease because he thought that this was the best way to allow people to have access to such goods. Hume thus saw commerce as a benign force, and thought that its promotion should be the goal of sound public policy. He was a defender of free trade and a critic of the prevailing mercantilist views that held international commerce to be a zero-sum game. He thought that a world of open commerce between people and between nations would be a more peaceful, civilised and happier one. Professor Paganelli has given us a useful and inciteful critique of Hume’s pre-modern, and frankly misguided, views on money. However, I think that her readers must be cautious in concluding more broadly that Hume is prey to a pre-modern understanding of economics rather than a forerunner of modern economic ideas. On numerous important topics, he certainly can be placed in the latter category. His economic writings as a whole can still be read with pleasure, and even perhaps with profit.
Comment 2 Robert W. Dimand and Calvin Hayes.
Maria Pia Paganelli’s paper begins with a clear, systematic, logically clear statement of her main theses which are then well-documented. She refers to two major players in modern economics, Milton Friedman and Robert Lucas, both of whom see Hume as a forerunner of their views. She presents strong arguments to disassociate Hume’s views from their versions of monetary neutrality. She makes a convincing case that Humean deflationary solutions to depressions and recessions are not mainstream today. However her argument raises issues both historical and logical. The former relate to her views on intellectual history; the latter to the distinction between the quantity theory of money as a theory and monetarism as policy. Dealing with these problems would increase the credibility of her case. Modern monetary theorists such as the Nobel laureates Friedman and Lucas did not invoke David Hume as an endorser of the monetarist approach to monetary policy, since of course they were well aware that Hume wrote in the context of commodity money (gold and silver bullion and coin), a context in which a policy rule for the growth of the quantity of fiat money has no place. Monetary economists invoke Hume in connection with theory, not policy, and view him as the most illustrious of the early exponents of the quantity theory of money. Hume was not the first to argue that a change in the quantity of commodity money, such as the inflow of gold and especially silver into Europe from Mexico and Upper Peru in the Sixteenth Century, would ultimately change prices in the same proportion, with no lasting change in real economic activity. In this, he was preceded by Martin de Azpilcueta (Navarrus) in Salamanca in 1556 and by Jean Bodin in France in 1568. Hume’s analysis of how international monetary equilibrium is achieved, which has no counterpart in Azpilcueta or Bodin, was anticipated by Isaac Gervaise in 1720, but Gervaise was almost entirely unread and unmentioned until his rediscovery by Jacob Viner in 1935 (see the reprint of Gervaise with foreword by Viner and introduction by John Letiche in R. Dimand, ed., The Origins of International Economics, Vol. I, London and New York: Routledge, 2004). Hume was innovative in his discussion of how a once and for all change in the quantity of money would have a temporary effect on real economic activity, but no permanent effect, while a continuing series of increases in the quantity of money could have a continuing effect on real output (see Thomas M. Humphrey, “Of Hume, Thornton, the Quantity Theory, and the Phillips Curve,” Federal Reserve Bank of Richmond Economic Review, November/December 1982). Professor Paganelli (page 65) makes the qualification that Hume is often associated with “the theory of money neutrality, at least in the long run”, but Humphrey argues that even in the long run, Hume viewed only once and for all changes in the quantity of money as neutral, not a continuing rate of change. Humphrey argues that this non-neutrality of money prompted Adam Smith’s complaint, in his lectures, that “Mr. Hume’s reasoning is exceedingly ingenious. He seems, however, to have gone a little into the notion that public opulence consists in money.”Professor Paganelli “offers an interpretation of Hume as a descendent of a pre-modern understanding of money rather than as a forerunner of modern monetary ideas” and “argues that there is little in Hume that resembles today’s monetary policy prescriptions.” Without question, Hume was indeed a descendent of an existing understanding of money, one stretching across time from Aristotle to Cantillon. But that is in no way inconsistent with being a forerunner of modern monetary ideas. There is no dividing line in intellectual history between a distant, irrelevant past and a closer, relevant past that has no relationship to what came before. Innovation in monetary theory has not precluded links with earlier monetary ideas (see R. Dimand, “Monetary economics, history of,” The New Palgrave: A Dictionary of Economics, 2nd ed., London: Palgrave Macmillan, 2008). Certainly, today’s monetary policy prescriptions for economies with inconvertible paper money differ from what Hume wrote about a world of commodity money, for the same reason that they differ from what modern monetary theorists would prescribe for a regime of commodity money.Hume certainly did write harsh things about paper money in his essay “Of the Balance of Trade” in 1752, as Professor Paganelli emphasizes (pages 73-74). At that time, Hume fully rejected the desirability of fractional-reserve banking. However, in the sixth edition of his essay in 1764, Hume deleted the remark that “our darling projects of paper-credit are pernicious” and added two new paragraphs (on pages 318-319 of the 1985 Liberty Fund edition of Hume’s essays). In 1764, Hume acknowledged that “there are certain lights, in which this subject may be placed, so as to represent the advantages of paper-credit and banks to be superior to their disadvantages” and that bank credit, as provided by the banks of Edinburgh, is “one of the most ingenious ideas that has been executed in commerce ... As a man may find surety nearly to the amount of his substance, and his bank-credit is equivalent to ready money, a merchant does hereby in a manner coin his house, his household furniture, the goods in his warehouse, the foreign debts due to him, his ships at sea; and can, upon occasion, employ them all in payments, as if they were the current money of the country. If a man borrows a thousand pounds from a private hand, besides that it is not always to be found when required, he pays interest for it, whether he be using it or not: His bank-credit costs him nothing except during the very moment in which it is of serve to him: And the circumstance is of equal advantage as if had borrowed money at much lower interest.” Hume’s new acceptance of the “right use of paper-money”, issued by private banks and convertible on demand into metallic coin, with such metallic coin as the only legal tender, did not extend to government issues of paper money (and especially not to making paper money legal tender). In a letter to the Abbé Morellet on 10 July 1769, Hume held that the assemblies of the British colonies in North America had “issued paper without end, and thereby discredited the currency.” One possible reason why Hume turned his attention again to paper money in 1764, twelve years after the bulk of his writing on economics, was that, as secretary to the British ambassador in Paris (and subsequently as chargé d’affaires and Undersecretary of State), Hume was involved in negotiating the settlement of the paper money of New France (Canada), which Britain had conquered in the Seven Years War (see R. Dimand, “David Hume on Canadian Paper Money,” in Carl Wennerlind and Margaret Schabas, eds., David Hume’s Political Economy, London and New York: Routledge, 2008 – a shorter version of this paper appeared in the Journal of Money, Credit, and Banking, August 2005).Despite the foregoing remarks, there are very interesting ideas in the paper. The discussion of how Hume’s analysis of deflation differs from modern views is particularly novel and persuasive.
Robert Dimand teaches economics and Calvin Hayes teaches business ethics, both at Brock University, St. Catharines, Ontario L2S 3A1, Canada.
Author's response to Neil McArthur
Professor McArthur brings to light important aspects of David Hume that might easily have gone overlooked in my mild polemic with possible anachronistic interpretations of historical works on monetary policy. I completely agree with Professor McArthur when he says that Hume was, for his time, a radical defender of commerce and of the luxury that commerce brings. It is indeed through commerce, powered by our desire to gain luxury, that a society prospers. His defense of luxury, especially in “Of Refinement in the Arts” (originally titled “Of Luxury”), is innovative and radical for his time. Professor McArthur correctly points out that Hume’s claim about commerce and luxury may pass as uncontroversial if seen from a modern prospective. But when seen in context, the innovation in Hume’s reasoning stands out. I am grateful to Professor McArthur for strengthening my argument with such grace by pointing out the fundamental contribution of Hume in the luxury debate.
Author's response to Robert Dimand and Calvin Hayes
I am thankful to Professors Dimand and Hayes for their careful reading of my piece and their insightful comments. Their comments allow for a fuller view of Hume. First of all, I thank them for referring to the school of Salamanca and Jean Bodin, which I did not mention in the paper; for clarifying the marginal role of Isaac Gervasie, whom I mentioned extensively; and for elucidating the contribution of Thomas Humphrey, whose work I deeply admire and whom I cited, though highlighting a different aspect of his position. Professors Dimand and Hayes make three major points, all of which are well taken, and with all of which I find myself in agreement. First, that there is a difference between monetary theory and monetary policy. Second, that ideas can be both descendents of their predecessors and forerunners of their successors. And finally, that Hume was not always critical of the use of paper money but became favorable of its “right use.” I am grateful that Professors Dimand and Hayes brought to light the important distinction between theory and policy. I agree that Hume can be placed in an intellectual line that develops the quantity theory of money. But Hume is interested in monetary policy, not just in monetary theory. When he states that “the good policy of the magistrate is to keep it [money] still encreasing” he is suggesting a policy prescription. My enterprise in this paper is to try to understand what this policy is for Hume. I believe there are at least two ways to approach this question. One is to look at it with the eyes of the present, and the other is to look at it with the eyes of the past. If we try to understand what this “good policy” may be by using the tools and the knowledge of today, we may bring to light some relevant aspects while overshadowing others. If we try to understand what Hume may have meant, equipped only with the knowledge that Hume had, we may make mistakes by today’s standards, but we may see some aspects of what Hume considered a “good policy” that would otherwise go unnoticed. With this paper I try to contrast these two approaches, emphasizing looking at Hume as an end point rather than a starting point, ignoring our knowledge and focusing on his instead. This, as Professors Dimand and Hayes point out, does not preclude the possibility of Hume being a forerunner of modern monetary ideas. But by changing prospective, by turning around and looking at how Hume came from the past rather than how he led us into the future, hopefully we can see and learn things that we otherwise risk missing, even if not necessarily correct given our current knowledge. Finally, I am happy that Professors Dimand and Hayes mentioned the potential ambivalence in Hume’s dislike of paper money. I believe that Hume’s position on paper money is indeed complex. I hope to see more attention and more scholarship dedicated to this.
From Journal of Scottish Philosophy Forum 7.1 back to Journal of Scottish Philosophy
From Journal of Scottish Philosophy Forum 7.1 back to IASP homepage
