To Redeem Metal with Paper: David Hume's Philosophy of Money

Hume Studies Volume XXII, Number 1, April 1996, pp. 169-191 To Redeem Metal with Paper: David Hume's Philosophy of Money LOREN GATCH David Hume's writings on political economy, and on money in particular, constitute only a small portion of his encyclopedic work.1 His stature in histories of economic thought appears correspondingly modest. In particular, Hume is credited by economic historians with having articulated an early version of the self-regulating mechanism of classical trade theory, and its relation to the quantity theory of money.2 This essay challenges the accepted view that money is a minor aspect of Hume's work. Instead, this essay argues that, by interpolating Hume's limited treatment of money into his wider philosophical concerns, money takes on a much wider significance for Hume's social thought than has been heretofore appreciated. Hume's analyses of the understanding and the passions do point to a central role for money in a Humean society. While such a role is only hinted at in Hume's actual discussion of money, his larger epistemological and moral doctrines imply that money transactions are the ideal units of social life. Money must become the mediator of social relations because a society actuated on Humean psychological principles would otherwise be an entropie one. This entropy is derivable both from Hume's doctrine of sensationalism and his formulation of utilitarian self-interest and sympathy in sensationalist terms. In short, implicit in Hume's thought is something like a Humean philosophy of money. This argument not only reintroduces money into Hume's other concerns, but highlights a triplet of reversals that are immanent in Humean social Loren Gatch is at the Department of Government, 125 McGraw Hall, Cornell University, Ithaca, New York, 14853-4601 USA. email: lg20@cornell.edu. 170 Loren Gatch thought. First, Hume holds that proper money must be made of a precious metal, and that paper currency is at best an inferior representation of its metallic original. Yet, as we shall see, Hume's thought reverses the original logic of representation: it is actually representative paper that redeems metal. This first reversal leads to a second: far from being a minor and derivative part of his work, Hume's writings on economy and money can actually be read as an important contribution to his moral and natural philosophy. Finally, money as a social institution ostensibly represents but one convention among many. Yet it is money itself that redeems Hume's moral vision, in the sense that a money consciousness, and monetary experience, provide a way out of the civilizational decadence implied by Hume's reliance upon convention. This is a large argument whose contours can only be sketched in the following pages. The keys to this interpretation are found at the two points where Hume contradicts the putative neutrality of money implied by the quantity theory: (i) his argument that an expansion (or contraction) of the money supply has real effects in the short-to-medium term;3 and (ii) his abhorrence of paper money—particularly those fiduciary emissions of the government itself. These exceptions to the neutrality postulate of the quantity theory harbor the suggestion that the development of social life is identical with the progressive monetization of all human relations. In a wider historical perspective, this monetization is tantamount to a society-wide loss of control over the nature and definition of money that is made palatable by the transformation of money from a political to a technical issue. Let us consider this argument in the following stages. First, we will contrast briefly the monetary legacies of Hume and Locke. Given Locke's importance as a theoretician of political liberalism, and the salient role money plays in his theories, it behooves us to orient our discussion of Hume's monetary ideas with a short review of Locke's, especially since the obvious similarities between the two thinkers mask deeper differences. Then, we will turn to Hume's specific monetary ideas. Next, we will situate these ideas in his other economic writings. In turn, his monetary and economic doctrines can be inserted into his moral and natural philosophy in such a way as to correct for...