Endogenous Money and David Hume
Eastern Economic Journal, Vol. 32, No. 3, Summer 2006
Posted: 17 Dec 2008 Last revised: 18 Apr 2012
Date Written: December 15, 2008
David Hume's monetary theory has two standard yet inconsistent readings. As a forefather of the quantity theory of money, Hume sees money as neutral. As an inflationist, Hume sees an active positive role for monetary policy. This paper reads Hume consistently instead, by showing that for Hume money is endogenous and demand driven. Hume would read the money equation as reverse causation and the co-presence of inflation and output growth as driven by demand. The 18th century knowledge of monetary theory corroborates this reading.
Keywords: David Hume, Money, Endogenous Money
JEL Classification: B12, E4
Suggested Citation: Suggested Citation