David Hume's Concept of Money

Cay Hehner

[A paper presented at the annual Council of Georgist Organizations
conference, Cleveland, Ohio; 5 August, 2009]

Abstract: David Hume is generally considered the mentor of Adam Smith and the originator of the quantity theory of money. His Essays on Economics [1752/58] mark the in-point of classical economic theory with definite panache. This paper will explore Hume's influence on Georgist monetary theory & the relevance of both thinkers to showcase solutions for the present Great Recession.

It has been all but forgotten that Hume's Economic Essays ran through 11 editions during his life time, that they were much more popular & successful than Smith's Wealth of Nations -- which did not catch on in circles "in the loop" until half a century later -- and that those essays heavily influenced every one of the major social thinkers of his day from Benjamin Franklin, and the New Frontier philosophers[1] down, to James Steuart, the Mercantilist, and the leading Physiocrats, Turgot & Quesnay, not to mention Adam Smith himself. To our knowledge there is no direct reference in Henry George's work to Hume's economic essays, but the influence is both obvious & undeniable as we shall see presently.

With the waning of the idea of Divine Providence and a teleological conception of History derived from scholastic thinkers like Thomas Aquinas something else had to take its place. Hume shares with the enlightenment philosophers Locke and Jefferson and Henry George, who based his teachings on them, their preoccupation with the analysis of natural phenomena and the natural laws derived thereof. This natural-law approach in lieu of the previous theological one would spawn an unprecedented thriving of the natural or 'hard' sciences on the one hand and the foundation of of Classical Economics on the other. It is the foundation of the second that interests us here.

"Money is not, properly speaking, one of the subjects of commerce; but only the instrument which men have agreed upon to facilitate the exchange of one commodity for another. It is none of the wheels of trade: it is the oil which renders the motions 2 of the wheels more smooth and easy."[2]

This is the celebrated opening passage of Hume's most famous economic essay: Of Money. In other words for Hume -- as opposed to the Mercantilist school -- money is not wealth in itself, but it is a medium and facilitator of exchange. He continues the passage in giving an outline of the quantity theory of money in a nutshell, a theory that had as yet not be formulated, but that would dominate the economic thinking of the main schools of economic thought in the second half of the 20th century, the schools of the Micro-economists & the Monetarists, a theory also that would have to be connected with Hume's name in perpetuity.

"If we consider one kingdom [read: nation] by itself, it is evident, that the greater or less plenty of money is of no consequence; since the prices of commodities are always proportioned to the plenty [read: quantity] of money, & a crown in Henry VII time served the same purpose as a pound does at present."[3]

That is to say that what took a nickel to buy in the days before the Great Depression, say a cup of coffee, will take a dollar or two at present. The product may be the same, its quantity or quality may be even exactly the same, but it takes a multiple monetary amount to obtain it today. "The pay of the servants", Hume continues, "must rise in proportion to the public opulence."

Hume in his economic essay on Public Credit even makes the strange prediction that a land (or natural resources) tax would have the effect of a reversal of the positions of the landlords and the laborers within five centuries.[4] He may be wrong in his prediction and the reversal or liberation of the laborer from the oppression of the latifundistas or land-monopolists may not take that long. More than two hundred fifty years have past since he made it, and if we play our hand correctly and disseminate the ideas of Henry George far & wide, we may not have to wait an equal amount of time to live to see a Georgist society. Unemployment figures rising, home fore-closures at a record high and increasing our times are markedly outrageous and getting progressively worse, and never has there been an age in greater need of economic change and a more equitable distribution of wealth.

Make no mistake, however, Hume - as ingenious, intuitive and anticipatory a socio-economic thinker he may have been -- did not welcome the idea, of the "slaves" taking the stand of the "masters", the idea of social justice in an economically democratic society in other words. Hume did belong to the caste of the lords & masters, and he was very conscious of that fact all his life! He belonged to the landed gentry, he had worked as a diplomat in France and even as the Undersecretary of Commerce and Trade of the British Empire -- a position close to the one that Stuart Mill would inherit from his father James Mill a century later, and a position roughly akin to the one Louis F. Post would hold in the Wilson administration nearly two centuries on. Laborers as lords, slaves as masters, Americans in the driver's seat of History rather than the British imperialists Hume represented, he wanted none of it and he would have loathed & resented every moment of the change he so clearly foresaw!

Later Adam Smith would expand tremendously on Hume's economic thought in quantity, but he would get as many things wrong as he would get them right in quality. Consider as an example the following passage from Hume's Essay of Commerce:

"Everything in the world is purchased by labor; and our passions [read: primary needs] are the only causes of labor. When a nation abounds in manufactures and [the] mechanic arts, the proprietors of land, as well as the farmers, study agriculture as a science, and redouble their industry and attention. The superfluity [meaning: surplus], which arises from their labor, is not lost; but is exchanged with manufactures for those commodities, which men's luxury [read: striving for a greater material well-being] now makes them covet. By this means, land furnishes a great deal more of the necessaries [today: necessities] of life, than what suffices for those who cultivate it."[5]

The first phrase clearly adumbrates the labor theory of value. The remainder of the passage highlights the importance of land and natural resources, the abundance of nature, indeed. In Hume we find none of the "niggardliness of nature", of the 'invisible hand' of the Almighty sanctioning & even causing poverty, giving its blessings to the most egregious social and economic injustices that we find from Smith down in the writings of most later classical economists. Again, let's make no mistake about this, Hume wasn't happy with the labor theory of value, he found the power of the land awesome, perhaps frightening, and he did not like the prospect of social justice for future generations one bit, but he -- unlike most of his successors --had the intellectual integrity not to deny any of them. Part of his genius consisted in foreseeing and visiting the future & even if it would put himself at a personal disadvantage he was not foolish enough not to acknowledge the facts or deny the laws of nature or social development. In this sense Hume unlike most of the rest of the classical school - and this includes Karl Marx -- was a proto-Georgist against his better interest and inspite of himself. Smith follows his mentor to the letter, pays a lot of lip service, but forfeits the spirit and whenever he has a chance of getting anything wrong, he can't resist the temptation to do so.

What can we learn from Hume and George in our present global economic crisis?

  • Money (and by extension credit) is not a fetish, it is an ancillary means to facilitate economic activity, nothing more, nothing less
  • The quantity theory of money in Humist & Georgist terms stipulates that money needs to reflect real economic activity, i.e. production & exchange of goods & services in real terms (Enron and hedge fund managers learned the hard way that pushing paper may create temporarily illusions, but solves ultimately nothing & leads to certain general disaster)
  • The labor theory of value underlines that no economic value can be created without labor, i.e. a system that denies labor its value and the laborer his or her human dignity and worth is certainly doomed to fail
  • Natural law when followed & honored may produce miracles of wealth and abundance, grossly violated it will produce both natural & economic disasters


  1. These are sometimes referred to as the "Federalists" or 'U.S. enlightenment', however, from the Georgist perspective, the economists of the New Frontier, mainly Franklin, Jefferson, Paine et al would develop ideas from the Physiocrats towards an LVT reform, Hamilton, for instance, is generally counted among the first, but he doesn't belong to the second group
  2. Eugene Rothwein [ed.], Hume's Writings on Economics, NYC, 1955/2007, p. 33
  3. Rothwein, same page
  4. Rothwein, op. cjt., 1955, p. 97
  5. op. cit, p. 11