Saturday, December 8, 2018

David Hume, As a Free Market Economist

An engraving of Hume from
The History of England (1st volume) 
In 1752, David Hume published his book the Political Discourses, which is a collection of essays on a subject that was in his time called political economy and is today known as economics. The ideas that he presents in these essays are broadly similar to the economic theory that Adam Smith describes in his The Wealth of Nations, published in 1776. Hume has exercised heavy influence on Smith’s economic thinking. There are numerous references, both explicit and implicit, to Hume in virtually all of Smith’s writings.

Dennis C. Rasmussen, in his book The Infidel and the Professor: David Hume, Adam Smith and the Friendship that Shaped Modern Thought, notes that within a month of the publication of Hume’s Political Discourses, Smith gave an account of Hume’s economic thinking to a gathering of professors. He was impressed by Hume’s empirical argument against British mercantilism. This can only mean that Hume had shared the work with Smith prior to publication.

Here’s an excerpt from Rasmussen’s book:
Judging from the rough report known as the “Anderson notes,” it appears that Smith also discussed Hume's Political Discourses— specifically, the essay “Of Interest”—in his jurisprudence lectures beginning quite early in his time at Glasgow. In his later lectures, we know, he showered praise on a concept that Hume outlines in “Of the Balance of Trade” and “Of Money” and that has come to be known as “Hume’s specie-flow mechanism.” Hume, Smith proclaimed, had “very ingeniously” proven the “absurdity” of the common worry about losing gold and silver through an unfavorable balance of trade. Given that prices and wages adjust automatically to the amount of money in circulation, any attempt to restrict the export of gold and silver would be self-defeating. Smith pronounced to his students that “Mr. Hume’s reasoning is exceedingly ingenious,” though he also chided Hume for having “gone a little into the notion that public opulence consists in money”—presumably a reference to Hume’s strictures on the use of paper money in the early editions of the Political Discourses. Based on Hume’s “ingenious” argument and a host of others, Smith concluded that “Britain should by all means be made a free port… and that free commerce and liberty of exchange should be allowed with all nations and for all things.” 
Rasmussen points out that many of Hume’s arguments anticipate those of Smith’s great work. Hume holds that the true source of a nation’s wealth is not gold or silver or a positive balance of trade but a productive citizenry, and that free trade works to the benefit of all parties involved—the rich and the poor, the government and the populace. He speaks against the numerous regulations that England and other European nations have put on trade. In his essay, “Of Luxury,” which in the later editions he retitled “Of Refinement in the Arts,” Hume insists that there is nothing particularly noble or redeeming about poverty, nor anything intrinsically objectionable about luxury.

Hume’s Political Discourses was widely read and praised in Britain and France. In his biography My Own Life, Hume singles out this volume as “the only work of mine that was successful on the first publication.” It is also worth noting that Hume was a Conservative Tory in his politics.

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