David Hume

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David Hume was one of the first economic theorists to think about the effects of the international Gold Standard. Hume proposed the Price-Specie-Flow model. This holds that an influx of gold would lead to inflation, raising prices. As prices rise the given country’s citizens will import more, and the country will export less, leading to an outward flow of gold. Though relative prices change initially, absolute prices ultimately equilibrate, and gold becomes distributed around the world. Hume believed that “the want of money can never injure any state within itself,” (293) and advocated for industrialization, which he posited led to economic growth.

Hume also claimed that free trade obviated countries’ jealousy over each others’ economic growth, because success in one country aided any nation with which it traded. He stood against protectionism, arguing, “it is very usual, in nations ignorant of the nature of commerce, to prohibit the exportation of commodities, and to preserve among themselves whatever they think valuable and useful. They do not consider, that, in this prohibition, they act directly contrary to their intention.” (308)

Hume similarly advocated for the free movement of capital, believing that with open markets and free capital flows policymakers would not need to worry about the balance of payments. He opposed sterilization, writing “the only expedient, by which we can raise money above [its level of supply], is a practice which we should all exclaim against as destructive, namely, the gathering of large sums into a public treasure, locking them up, and absolutely preventing their circulation.” (320)


Hume, David. Essays: Moral, Political, Literary. 1754, 1785. “Of the Balance of Trade.”