David Hume Essays: Money

SORAnomics, derived from Adam Smith and David Hume, replaces the GDP of Economics, with two key measures: Gross Territorial Production (GTP) and Purchasing power. GTP is a society’s gross profit within its physical territory while Purchasing Power is its cost. To make sure that our Smith-based system is in line with Hume, I am simplifying Hume’s Essays bit by bit.

Money is not a subject of commerce.

  • It is only the instrument which men have agreed upon to facilitate the exchange of one commodity for another.
  • It is not the wheel of trade
  • It is the oil which renders the motion of the wheels more smooth and easy.
  • The amount of money is of no consequence in any country since the prices of commodities are always proportional to the amount of money.
    • A crown in HARRY VII’s time served the same purpose as a pound does at present.


*22 It is only the public which draws any advantage from the greater plenty of money.

  • They get this advantage only in their wars and negotiations with foreign states.
  • All rich countries have employed mercenary troops from poorer neighbours.
  • If they used their native subjects, it would be very expensive.
  • Our small army of 20,000 men is maintained at as great expence as a FRENCH army
    atwice the size.
  • The ENGLISH fleet, during the late war, *23 needed as much money as all the imperial ROMAN legions, which kept the whole world in subjection.*24
  • Most people and their industry are serviceable at home and abroad, in private, and in public.
    • But money is very limited in its use.
    • It may even sometimes be a loss to a nation in its commerce with foreigners.
  • There is a happy concurrence of causes in human affairs, which checks the growth of trade and riches.
    • It hinders them from being confined entirely to one people.
      • This confinement is naturally dreaded at first from the advantages of an established commerce.
  • Where one nation has gotten the start of another in trade, it is very difficult for the latter to regain the ground it has lost; because of:
    • the superior industry and skill of the former,
    • the greater stocks of its merchants
      • These enable them to trade on so much smaller profits.
  • But these advantages are compensated somewhat by the low price of labour in poor countries.
  • Manufactures, therefore gradually shift their places.
    • They leave those countries which they have already enriched.
    • They fly to others where they are allured by the cheapness of provisions and labour until they have enriched these also.
    • They are again banished by the same causes.
  • In general, the dearness° of everything, from plenty of money, is a disadvantage which attends an established commerce.
    • It limits commerce in every country, by enabling the poorer states to undersell the richer in all foreign markets.

  • This has made me doubt the benefit of banks and
    paper-credit, which are so generally esteemed advantageous to every nation.
  • The dearness of the provisions and labour from the encrease of trade and money is an unavoidable inconvenience.
    • It is the effect of that public wealth and prosperity which we all want.
    • It is compensated by the advantages of us having precious metals.
      • It gives us advantages in all foreign wars and negotiations.
  • But there is no reason to increase that inconvenience by a counterfeit money that foreigners will not accept.
    • Any great disorder in the state will reduce counterfeit money to nothing.
  • There are many rich people in every rich state who would prefer paper with good security because it is easier and safer to transport.
  • If the public does not provide a bank, private bankers will provide it.
    • Goldsmiths formerly did it in LONDON.
    • Bankers do it presently in DUBLIN:
  • People think that a public company should enjoy the benefit of that paper-credit.
    • But to artificially try to increase such a credit, can never be the interest of any trading nation.
    • It would encrease money beyond its natural proportion to labour and commodities
    • It would give them disadvantages by heightening their price to the merchant and manufacturer.
  • Thus, the most advantageous bank is one that:
    • has locked up all the money it received.
    • *25 never augmented the circulating coin, as is usual, by returning part of its treasure into commerce.
  • A public bank, by this expedient, might cut off much of the dealings of private bankers and money-jobbers.
    • The state would bear the charge of salaries to the directors and tellers of this bank.
      • The state would have no profit from its dealings.
      • But it would be compensated by:
        • the resulting:
          • low price of labour and
          • destruction of paper-credit
        • having a large a sum ready in times of great public danger
          • Any used part of it might be replaced at leisure, when peace was restored.
  • I will return to the topic of paper credit later.
  • I will now explain two observations from our speculative politicians
  • ANACHARSIS *26 the SCYTHIAN had never seen money in his own country.
    • He shrewdly observed that gold and silver seemed to him of no use to the GREEKS, but to assist them in numeration and arithmetic.
  • Money is nothing but the representation of labour and commodities.
    • It serves only as a method of rating or estimating them.
  • If coin is abundant, more of it is needed to represent the same amount of goods.
    • It would have no good or bad effect, taking a nation within itself, any more than it would make an alteration on a merchant’s books.
    • It would be the same as changing the method of notation of numbers from Roman into Arabic.
      • The Arabic needs fewer characters than the Roman
    • A greater quantity of money is inconvenient like the ROMAN characters.
      • It requires more trouble both to keep and transport it.
    • Since the discovery of the mines in AMERICA, industry has increased in all European nations, except in the possessors of those mines.
    • This may justly be ascribed, amongst other reasons, to the encrease of gold and silver.
    • Accordingly in every kingdom where more money flows in, every thing takes a new face:
      • Labour and industry gain life
      • The merchant becomes more enterprising
      • The manufacturer more diligent and skillful
      • The farmer follows his plough with greater alacrity and attention.
      • This is not easily to be accounted for, if we consider only the increase of coin.
        • It raises the price of commodities.
        • It obliges every one to pay more of these yellow or white pieces for every thing he purchases.
      • And as to foreign trade, it appears, that great plenty of money is rather disadvantageous, by raising the price of every kind of labour.
  • The high price of commodities is a necessary consequence of the encrease of gold and silver.
    • But it does not happen immediately.
    • Some time is needed before the money circulates through the whole state, and makes its effect felt on all.
  • At first, no alteration is perceived.
    • By degrees, the prices rise.
    • First of one commodity, then of another.
    • Until the whole at last reaches a just proportion with the new quantity of specie in the kingdom.
  • In my opinion, it is only in this interval or intermediate situation, between the acquisition of money and rise of prices, that the encreasing quantity of gold and silver is favourable to industry.
    • When any quantity of money is imported into a nation, it is not at first dispersed into many hands.
    • but is confined to the coffers of a few persons, who immediately seek to employ it to advantage.
  • For example, a set of merchants have received returns of gold and silver for goods which they sent to CADIZ.
    • *27 They thus can employ more workers than before.
      • Those workers do not dream of higher wages, but are glad to be  employed from such good paymasters.
      • If workers become scarce, the manufacturer gives higher wages.
        • But at first, he needs an increase of labour.
        • The artisan willingly submits to this so he can eat and drink better to compensate his added toil and fatigue.
          • He carries his money to market.
          • He finds every thing at the same price as before.
          • But he returns with more and better kinds for his family. (Demand based)
        • The farmer and gardener find that all their commodities are taken off.
          • They apply to raise more.
          • At the same time, they can afford to take better and more cloths from their tradesmen.
            • The price of those clothes is the same as before.
            • Their industry is only whetted by so much new gain.
      • It is easy to trace the money in its progress through the whole commonwealth.
        • It first quickens everyone’s diligence before it encreases the price of labour.


  • The frequent operations of the FRENCH king on money proved that money rises higher before it increases the price of labour.
    • They found that augmenting the numerary value did not produce a proportional rise of the prices, at least for some time.
  • In the last year of LOUIS XIV, money was raised 3/7, but prices augmented only by 1/7.
    • Corn in FRANCE is now sold at the same price, or for the same number of livres, it was in 1683.
    • Silver was then at 30 livres the mark, and is now at 50.
    • *28 Not to mention the great addition of gold and silver, which may have come into that kingdom since the former period.
  • We may conclude, that the amount of money does not affect the domestic happiness of a state.
  • The good policy of the magistrate consists only in keeping it continually encreasing, so that he:
    • keeps alive the nations’ spirit of industry
    • encreases the stock of labour
      • All real power and riches is in labour.
  • A nation, whose money decreases, is actually, at that time, weaker and more miserable than another nation which has no more money, but is on the encreasing hand.
    • This is because the alterations in the quantity of money are not immediately attended with proportionable alterations in the price of commodities.
      • There is always an interval before matters are adjusted to their new situation.
      • If gold and silver are diminishing, this interval is as pernicious to industry as it is advantageous when these metals are encreasing.
  • The worker does not have the same employment as the manufacturer and merchant, even if he pays the same price for every thing in the market.
  • The farmer cannot dispose of his corn and cattle even if he must pay the same rent to his landlord.
  • The poverty, beggary, and sloth, which must ensue, are easily foreseen.


II. Money is so scarce in some European countries that the landlord can get none from his tenants.

  • He is obliged to take his rent in kind, and either:
    • consume it himself, or
    • bring it to places where he may find a market.
  • In those countries, the prince can levy few taxes.
    • He will receive small benefit from taxes.
    • But it is evident that such a kingdom has little force even at home.
      • It cannot maintain fleets and armies compared to if it were abundant in gold and silver.
  • There is a greater difference between Germany’s current forces compared to 300 years ago, *29 than there is in its industry, people, and manufactures.
  • The AUSTRIAN dominions are generally wide, well peopled, and well cultivated.
    • But they have no proportionable weight in the balance of EUROPE.
      • It commonly blamed on their scarcity of money.
  • How can these be, when the principle states that the amount of gold and silver is in itself altogether indifferent?
    • According to that principle, wherever a sovereign has many subjects with many commodities, he would be great and powerful, and they rich and happy.
      • These are independent of the amount of their precious metals.
  • These admit of divisions and subdivisions to a great extent.
  • Where the pieces might become so small as to be easily lost, it is easy to mix the gold or silver with a baser metal.
  • This is practised in some European countries.
  • By that means, they raise the pieces to a bulk more sensible and convenient. They still serve the same purposes of exchange, whatever their number may be, or whatever colour they may be supposed to have.

The effect, that is thought to flow from scarcity of money, really arises from the manners and customs of the people

  • We usually mistake a collateral effect for a cause.
  • The contradiction is only apparent; but it requires some thought and reflection to discover the principles, by which we can reconcile reason to experience.

It is an obvious maxim:

  • The prices of every thing depend on the proportion between commodities and money
  • Any considerable alteration on either has the same effect, either of heightening or lowering the price.
    • Encrease the commodities, they become cheaper;
    • encrease the money, they rise in their value.
    • As, on the other hand, a diminution of the former, and that of the latter, have contrary tendencies.
  • The prices do not so much depend on the absolute quantity of commodities and  money which are in a nation.
    • It depends more on the amount of commodities which are in the market and the amount of money which circulates.
  • If the coin be locked up in chests, it would affect prices in the same way as if it were annihilated.
    • If the commodities were hoarded in emagazines and granaries, a like effect follows.
  • In these cases, the money and commodities never meet.
    • They cannot affect each other.
  • Our estimation on the price of provisions should never include the corn which the farmer must reserve ffor seed and for the maintenance of himself and family.
    • It is only the overplus, ° compared to the demand, that determines the value of provisions.
  • To apply these principles, we must consider, that, in the first and more uncultivated ages of any state, where fancy has confounded her wants with those of nature, men, content with the produce of their own fields, or with those rude improvements which they themselves can work upon them, have little occasion for exchange, at least for money, which, by agreement, is the common measure of exchange.
  • The wool of the farmer’s own flock, spun in his own family, and wrought by a neighbouring weaver, who receives his payment in corn or wool, suffices for furniture and cloathing.
  • The carpenter, the smith, the mason, the tailor, are retained by wages of a like nature;
  • The landlord is content to receive his rent in the commodities raised by the farmer.
    • Most of these he consumes at home, in rustic hospitality.
    • The rest he disposes of for money to the neighbouring town, from where he draws the few materials of his expence and luxury.


  • But after men begin to refine on all these enjoyments, they do not live always at home.
    • They are not content with what can be raised in their neighbourhood.
    • There is more exchange and commerce of all kinds, and more money enters into that exchange.
  • The tradesmen will not be paid in corn because they want something more than barely to eat.
  • The farmer goes beyond his own parish for the commodities that he buys.
    • He cannot always carry his commodities to the merchant who supplies him.
  • The landlord lives in the capital, or in a foreign country.
    • He demands his rent in gold and silver, which can easily be transported to him.
  • Great undertakers, manufacturers, and merchants, arise in every commodity.
    • These can conveniently deal in nothing but in specie.
  • Consequently, the coin enters into many more contracts.
    • By that means it is much more employed than before.
  • The effect is that, provided the money does not encrease in the nation, every thing must become much cheaper in times of industry and refinement, than in rude, uncultivated ages.
    • It is the proportion between the circulating money and the commodities in the market which determines the prices.
  • Goods, that are consumed at home, or exchanged with other goods in the neighbourhood, never come to market.
    • They affect not in the least the current specie; with regard to it they are as if totally annihilated;
    • consequently this method of using them sinks the proportion on the side of the commodities, and encreases the prices.
  • But after money enters into all contracts and sales, and is every where the measure of exchange:
    • the same national cash has a much greater task to perform;
    • all commodities are then in the market;
    • the sphere of circulation is enlarged;
      • It is the same case as if that individual sum were to serve a larger kingdom;
      • Therefore, the proportion being lessened on the side of the money, every thing must become cheaper, and the prices gradually fall.


  • By the most exact computations in EUROPE, after making allowance for the alteration in the numerary ° value or the denomination, the prices of all things have only risen three, or four times, since the discovery of the WEST INDIES.

    • *30 But will anyone assert, that there is only four times the coin in EUROPE, that was in the 15th century, and the centuries preceding it?
  • The following bring home about g6,000,000 a year:
    • The SPANIARDS and PORTUGUESE from their mines
    • the ENGLISH, FRENCH, and DUTCH, by their AFRICAN trade
      • by their interlopers in the WEST INDIES
  • Of these up to 2,000,000 goes to the EAST-INDIES.
  • This sum alone, in 10 years, would probably double the ancient stock of money in EUROPE.
  • All prices have not risen to a much more exorbitant height only because of the change of customs and manners.
    • More of the same commodities are produced by additional industry and come to the market.
    • This causes people to depart from their ancient simplicity of manners.
  • This encrease has not been equal to the increase of money.
    • But it has, however, been considerable.
    • It has preserved the proportion between coin and commodities nearer to the ancient standard.


  • Which is most advantageous to the people: the simple or refined way of living?
    • I prefer the latter, in a view to politics at least.
    • This as an additional reason to encourage trade and manufactures.
  • While men live in the ancient simple manner, and supply all their necessaries from domestic industry or from the neighbourhood, the sovereign can levy no taxes in money from most of his subjects.
    • If he will impose on them any burthens, he must take payment in commodities, with which alone they abound.
    • It is very inconvenient, that they need not here be insisted on.
    • All the money he can pretend to raise, must be from his principal cities, where alone it circulates.
      • These cannot afford him so much as the whole state could, if gold and silver circulate throughout.
    • This diminution of the revenue causes the public’s poverty.
    • The sovereign receives less money.
      • The same money will not go so far as in times of industry and general commerce.
    • The increase in prices also will cause poverty.
      • Every thing becomes dearer, where the gold and silver are supposed equal.
      • Since fewer commodities come to market, the coin bears a higher proportion.
      • It is this coin that measures the prices of every thing.
  • Historians commonly remark that any state that lacks money is weak, even if it is  fertile, populous, and well cultivated.
    • This is wrong.
    • The lack of money can never injure any state within itself because people and commodities are the real strength of any community.
    • It is the simple manner of living which here hurts the public.
    • It confines the gold and silver to few hands
    • It prevents its universal diffusion and circulation.
    • On the contrary, industry and refinements incorporate it with the whole state, however small its quantity may be.
    • They digest it into every vein
    • It makes it enter into every transaction and contract.
    • No hand is entirely empty of it.
    • And as the prices of every thing fall by that means, the sovereign has a double advantage:
      • He may draw money by his taxes from every part of the state.
      • What he receives, goes farther in every purchase and payment.


  • We may infer, from a comparison of prices, that money is not more plentiful in CHINA, than it was in EUROPE three centuries ago:
    • But what immense power is that empire possessed of, if we may judge by the civil and military establishment maintained by it?
  • POLYBIUS *31 tells us, that provisions were so cheap in ITALY during his time, that in some places, the h price for a meal at the inns was a semis a head, little more than a farthing!
    • Yet the ROMAN power had even then subdued the whole known world.
  • About a century before that, the CARTHAGINIAN ambassador said, by way of raillery, that no people lived more sociably amongst themselves than the ROMANS.
    • Because in every entertainment, which, as foreign ministers, they received, they still observed the same plate at every table.
  • *32 The absolute quantity of the precious metals is a matter of great indifference.
  • There are only two important circumstances:
    • their gradual encrease, and
    • their thorough concoction and circulation through the state.
  • The influence of both these circumstances has here been explained.


  • In the following Essay I shall expose a similar fallacy as the one above, where:
    • a collateral effect is taken for a cause, and
    • a consequence is ascribed to the plenty of money even if it really was due to a change in the people’s manners and customs.
[Henry (or Harry) VII was king of England from 1485 to 1509. For an analysis of the monetary theory that Hume develops in this essay and its relation to other views of his time, see Rotwein,
David Hume: Writings on Economics, pp. liv-lxvii. Hume’s broad purpose here is to oppose mercantilist views that tended to identify wealth with money and thus to encourage policies aimed at increasing the quantity of a nation’s bullion or money. Hume argues for the general principle that an abundant quantity of money does not increase a state’s domestic happiness and may sometimes even harm it. He undertakes to reconcile this principle with evidence that an increase in the supply of money can be a beneficial stimulus to industry at certain stages of economic development and that a wide distribution of money is favorable to the collection of revenues.]
[Hume refers here to the War of the Austrian Succession (1740-48), which Great Britain entered to prevent French hegemony in Europe and to protect her commercial and colonial empire by establishing naval supremacy over France. In 1746, Hume accompanied an expeditionary force under General James St. Clair in an attack on the French coast. Hume describes the expedition, for which he received a commission as Judge-Advocate, in a manuscript known as the “Descent on the Coast of Brittany.” See Mossner,
The Life of David Hume (Edinburgh: Nelson, 1954), pp. 187-204.]
A private soldier in the ROMAN infantry had a denarius a day, somewhat less than eightpence. The ROMAN emperors had commonly 25 legions in pay, which allowing 5000 men to a legion, makes 125,000. TACIT.
Ann. lib. iv. [5.] It is true, there were also auxiliaries to the legions; but their numbers are uncertain, as well as their pay. To consider only the legionaries, the pay of the private men could not exceed 1,600,000 pounds. Now, the parliament in the last war commonly allowed for the fleet 2,500,000. We have therefore 900,000 over for the officers and other expences of the ROMAN legions. There seem to have been but few officers in the ROMAN armies, in comparison of what are employed in all our modern troops, except some SWISS corps. And these officers had very small pay: A centurion, for instance, only double a common soldier. And as the soldiers from their pay (TACIT.
Ann. lib. i. [17]) bought their own cloaths, arms, tents, and baggage; this must also diminish considerably the other charges of the army. So little expensive was that mighty government, and so easy was its yoke over the world. And, indeed, this is the more natural conclusion from the foregoing calculations. For money, after the conquest of ÆGYPT, seems to have been nearly in as great plenty at ROME, as it is at present in the richest of the EUROPEAN kingdoms.
This is the case with the bank of AMSTERDAM.
Quomodo quis suos profectus in virtute sentire possit. [Plutarch,
Moralia, “How a Man may become aware of his Progress in Virtue,” sec. 7.]
[Cádiz was the Spanish seaport where bullion entered from the West Indies.]
These facts I give upon the authority of Mons. du TOT in his
Reflections politiques [
Réflexions politiques sur les finances et le commerce (1738); translated as
Political Reflections upon the Finances and Commerce of France(1739)], an author of reputation. Though I must confess, that the facts which he advances on other occasions, are often so suspicious, as to make his authority less in this matter. However, the general observation, that the augmenting of the money in FRANCE does not at first proportionably augment the prices, is certainly just.By the by, this seems to be one of the best reasons which can be given, for a gradual and universal encrease of the denomination of money, though it has been entirely overlooked in all those volumes which have been written on that question by MELON, Du TOT, and PARIS de VERNEY [Joseph Paris-Duverney,
Examen du livre intitulé Réflections politiques sur les finances et le commerce, par de Tott (Examination of a book entitled Political reflections upon finances and commerce, by Dutot), 1740]. Were all our money, for instance, recoined, and a penny’s worth of silver taken from every shilling, the new shilling would probably purchase every thing that could have been bought by the old; the prices of every thing would thereby be insensibly diminished; foreign trade enlivened; and domestic industry, by the circulation of a great number of pounds and shillings, would receive some encrease and encouragement. In executing such a project, it would be better to make the new shilling pass for 24 halfpence, in order to preserve the illusion, and make it be taken for the same. And as a recoinage of our silver begins to be requisite, by the continual wearing of our shillings and sixpences, it may be doubtful, whether we ought to imitate the example in King WILLIAM’S reign, when the clipt money was raised to the old standard.
The ITALIANS gave to the Emperor MAXIMILIAN, the nickname of POCCI-DANARI. None of the enterprises of that prince ever succeeded, for want of money. [Maximilian I became Holy Roman Emperor Elect in 1508, but because of Venetian hostility, he was unable to go to Rome for his coronation. Maximilian then joined with France, Spain, and the Pope in the League of Cambrai, whose aim was to partition the Republic of Venice. Because of his lack of money and troops, he was considered an unreliable partner in the war that followed.
Pochi danari means “very few funds.”]
[Hume uses
West Indies broadly to refer to Central and South America. The exploration and conquest of the new world after Christopher Columbus’s discovery of the West Indies islands off the Atlantic coast of America in 1492 led, in the next century, to a tremendous increase in the supply of precious metals in Europe. Hume’s point is that the increase of prices has not kept pace with the increase in coin.]
Lib. ii. cap. 15. [
Histories 2.15.]


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