Re: what happened to Hume's money theory

On Sat, 24 Nov 2007 11:26:19 -0800, Ron Peterson wrote:

On Nov 24, 10:29 am, The Trucker <mik...@xxxxxxxxxxx> wrote:

At first glance I'd say that Hume was a gold bug that saw money as gold
coins that are fixed in supply. Other than that he was quite right about
his position concerning money; right to say that money was the oil for the
wheels of commerce and nothing more, and that the economic prowess of a
nation was the actual _STUFF_ it produced. IN the end, however, he
admitted that juicing the money supply and lowering interest rates could,
in the short term, spark the economy. I don't see any real debate about
this so I must assume you are referring to something from Hume with which
I am not familiar. What is it?

I don't think that Hume would be considered a gold but, in
http://cepa.newschool.edu/het/profiles/hume.htm says:
"Hume also introduced the automatic "price-specie flow" mechanism and
the "reflux principle". Its basic argument was to deny the old
Mercantilist policy proposition that the inflow of gold specie into a
nation could be accomplished by manipulating the external trade
balance. Hume argued that the inflow of specie would, by his Quantity
Theory, lead to a rise in domestic prices, thereby changing the terms
of trade against the recipient nation. The demand for its exports
abroad would consequently decline, and its own demand for foreign
imports would increase, thereby reversing the external trade balance
so that specie now would flow back out. Hume also used this logic to
deny the idea that rises in prices can be blamed on rising wages.
Specifically, if there was a wage-induced rise in the price level in
England, the terms of trade between England and other nations would
change in a manner detrimental to English exports and favorable to the
imports from other nations. This would thereby induce an outflow of
money from England , and thus a reduction in England's money stock
which would bring the price level in England back down. "

And that last sentence is what I meant when I said Hume was a gold bug.
He believed that the "money" was a tangible limited quantity commodity
known as gold. He never considered that money was infinite; that the
currency could be created at will. As the "money stock" (a latter day Fig
Newton) flows out of the country, more money is created and injected into
the economy. The rising prices have nothing to do with wage price
inflation and everything to do with a lack of significant
progressive taxation to keep the supply of money well distributed and
scarce. Yet the end result will be the same: American labor will be come
just as dirt cheap as Chinese labor as people are forced to work longer
and longer hours to be able to afford to live. Immigration, both legal and
illegal, will make this situation much worse. The only way to preserve
American life styles is to be totally independent of cheap labor countries
and to isolate the current Americans from the foreign labor pool. Malthus
was essentially correct. And the benefit to the Chinese laborers is also
quite fleeting. The Chinese had the correct idea when that limited child
birth.

--
"I know no safe depository of the ultimate powers
of society but the people themselves; and
if we think them not enlightened enough to
exercise their control with a wholesome
discretion, the remedy is not to take it from
them, but to inform their discretion by
education." - Thomas Jefferson
http://GreaterVoice.org/extend

.

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