From the corruption of morals to the danger of imperial expansion

In the first two essays, “Of Commerce” and “Of Refinement in the Arts”, Hume takes a stand in the debate concerning the relationship between increasing wealth and virtue. He opposes the classical tradition that associates wealth with political decadence and which interprets the history of Rome as the story of an interminable abandonment of the virtues - especially martial virtues - of the earlier Romans, following the rise in luxury consumption.

But though the want of trade and manufactures, among a free and very martial people, may sometimes have no other effect than to render the public more powerful it is certain, that, in the common course of human affairs, it will have a quite contrary tendency.... Now, according to the most natural course of things, industry and arts and trade increase the power of the sover­eign as well as the happiness of the subjects. (Ibid.: II, i, 9)

Then Hume seems to change subjects and the following three essays - “Of Money”, “Of Interest” and “Of the Balance of Trade” - express the core of his economic analysis.

All these texts were published in 1752. The final edition of the Essays added “Of the Jealousy of Trade”. This text, which denounces the use of trade policy as a weapon of war, is inserted prior to the essay “Of the Balance of Power”, which has no obvious economic content, and “Of Taxes” and “Of Public Credit”, which concern the financing of public expenditure. These are Hume’s economic publications in the strictest sense of the term (they were completed with the essays “Of some Remarkable Customs”, “Of the Populousness of Ancient Nations” and “Idea of a Perfect Commonwealth”).

The essay “Of Money” opens with the famous proposition:

Money is... none of the wheels of trade: It is the oil which renders the motion of the wheels more smooth and easy. If we consider any one kingdom 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 of money. (Hume 1742 [1987], II, iii: 1)

An increase in the quantity of money within an isolated economy has no effect on wealth. That is why money is neutral. Evidently, money is not part of the wealth of either an individual or an economy.

The essay “Of Interest” extends this analysis by seeking to show that a variation in the quantity of money can only have a transitory effect on the interest rate, a transition due to the length of time necessary to modify the value of money, caused by the vari­ation in its quantity. The final analysis shows that the effects on money prices concern both the numerator and the denominator of the interest rate, which ultimately remains unchanged following the variation in the quantity of money. It is therefore “real causes” that must explain variations in long-term interest rates.

Finally, the next and most famous essay, “Of the Balance of Trade”, is often credited with anticipating the monetary approach to the balance of payments: the argument sup­poses that any international commercial advantage (disadvantage) can be explained by lower (higher) domestic prices than international prices. This implies an inflow (outflow) of money causing a movement in prices that eliminates the initial advantage (disad­vantage) without affecting international prices. Hence, the quantity of money cannot endlessly accumulate within (leave) the economy in question.

Up until this point, Hume had dealt with three seemingly very different themes: the effects of commerce and wealth on martial virtues, the neutrality of money, and the automatic equilibrium of external trade. However, his economic discourse has a coher­ence that clearly emerges if we read the essay “Of the Balance of Power”, omitted from the Economic Writings published in 1955 by Rotwein and no longer present in the book David Hume’s Political Economy edited by Schabas and Wennerlind (2008). Reading this essay, as Hume had intended, after “Of the Balance of Commerce”, we move from the balance of foreign trade to the balance of power in Europe, and this is no coincidence.

After arguing that the politics of the balance of power between cities was practised in ancient Greece, Hume expresses surprise at the fact that this maxim had been discarded both by Rome (thus enabling it to build its empire) and by its adversaries (thus allowing the construction of the Roman Empire that caused their downfall). Yet the situation of Great Britain is comparable to that of Rome. The “excess” committed by Great Britain in its struggle against France (initiated in the days following the 1688 Revolution) led to an imminent catastrophe. Under the pretext of implementing the maxim of the balance of power in Europe, the British, animated by “jealous emulation” (Hume [1742] 1987, II, vii: 15), undertook an entirely different policy, characterized by “our own imprudent vehemence” (ibid.) that aimed not to preserve the balance of power in Europe, but to establish British domination on the continent. From then on, the maxim of the balance of power was modified and became a maxim of imperial expansion: “Enormous monar­chies are, probably, destructive to human nature; in their progress, in their continuance, and even in their downfall, which never can be very distant from their establishment” (Hume [1742] 1987, II, vii, 19). This essay echoes the proposition in “Of Refinement on Arts” that imputes the decadence of Rome not to an increase in wealth but to the exten­sion of their empire (Hume [1742] 1987, II, ii: 13).