: Hume favored a 100% specie-reserve system for banks to prevent the artificial "paper-money" inflation that disrupts the natural flow of gold. 🏦 Adam Smith: Banking and the Real Bills Doctrine
: He famously described money as the "oil which renders the motion of the wheels more smooth," but not part of the wheels themselves. In the long run, doubling the money supply only doubles prices without increasing real wealth. Monetary Theory and Policy from Hume and Smith ...
Hume’s primary contribution was the , which he used to dismantle the mercantilist obsession with hoarding gold. : Hume favored a 100% specie-reserve system for
: Hume argued that the price level of a country is directly proportional to its money supply. Hume’s primary contribution was the , which he
: If a country gains more gold (specie), its prices rise. This makes its exports expensive and imports cheap, causing gold to flow out until equilibrium is restored.
In The Wealth of Nations (1776), Smith focused less on Hume’s international flow mechanism and more on how banking could catalyze economic growth. Monetary Theory and Policy from Hume and Smith to Wicksell
The monetary theories of David Hume and Adam Smith represent the bedrock of classical economics, establishing how money interacts with prices, trade, and banking. While they were close friends, their views on how money impacts an economy differed significantly. David Hume: The Price-Specie Flow Mechanism