History of Political Economy 33.1 (2001) 139-160
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The Link between David Hume’s Treatise of Human Nature and His Fiduciary Theory of Money
David Hume’s position in the history of economic thought has oscillated between prominence and obscurity. Certain writers herald Hume as a truly seminal economic thinker, whereas others tend to attribute limited importance to his economic writings.1 The last twenty years have seen a resurgence of interest in the monetary writings of Hume, highlighted by the recent publication of two anthologies edited by Mark Blaug (1991, 1995a). The papers contained therein, based exclusively on the short essay “Of Money” from the Political Discourses ( 1985), contribute to a coherent interpretation of Hume’s monetary theory, allowing for only minor [End Page 139] interpretive disagreements.2 I propose that Hume’s monetary analysis in “Of Money,” when studied in conjunction with his discussion of promises in A Treatise of Human Nature ( 1978),3 reveals Hume as a fiduciary theorist and practical metallist, rather than the theoretical metallist he is often thought to be (Schumpeter  1986; Vickers  1968; Humphrey 1974; Smithin 1994; Gatch 1996). This assessment is meaningful for the history of economic thought for at least two reasons. First, it is of hermeneutical interest in that it suggests that A Treatise of Human Nature configures a theory of money.4 Second, it may enhance our understanding of Hume’s influence on the development of Scottish classical political economy.5
The primary aim of this article is to argue that Hume’s analysis in the section “Of the Obligation of Promises” in book 3 of A Treatise of Human Nature prefigures a monetary theory. This section, generally interpreted as dealing abstractly with promises and obligations (Stewart 1963; Hayek 1966; Moore 1976; Haakonssen 1981; Vitek 1986; Pitson 1988), strongly implies that the commitment mechanism in contractual relationships among strangers—more precisely, among people who are not friends or members of the same family—is money. Since barter is plagued by various shortcomings that severely limit the extent of trade between strangers, Hume argued that people engaged in nonfamiliar transactions must agree upon a mechanism that allows them to overcome these constraints. The transaction whereby one party delivers commodities or services in exchange for a promise of repayment requires an internal mechanism that ensures a discharge of obligation. Hume argued that a conventional symbol could be employed, solving the credibility problem by functioning as a symbol and guarantor of the promise of resolution. Initially, the symbol would only be valid between specific individuals as a promissory note. However, as more people realized the societal benefits [End Page 140] of such an artifice, the symbol would become anonymous and function as money—a universal equivalent for all tradable property.
Furthermore, it will be shown below that for Hume, the most important aspect of such a monetary system is the authenticity and solemnity of the promise people communicate when they use the money symbol. The actual material or substance of money becomes irrelevant, which means that in some important sense Hume’s monetary theory is based on a fiduciary understanding of money. This conclusion challenges the long-standing view derived exclusively from “Of Money” by Joseph Schumpeter and Douglas Vickers, inter alios, that Hume was a theoretical metallist.
Following the analysis of A Treatise of Human Nature, I will provide a brief reading of “Of Money” and “Of the Balance of Trade,” from the Political Discourses. Here I will show how Hume developed his fiduciary monetary theory from A Treatise of Human Nature during the course of expanding his analysis to deal with open economies. The determinants added in the Political Discourses provide us with a more developed and well-defined theory of money, one that promotes fiduciary money in the context of practical metallism.
A Treatise of Human Nature
Hume and many of his contemporary Enlightenment philosophers sought to provide philosophical analyses of the society they saw developing. They tried to define a set of...