Philosopher, Economist, Historian (1711–1776)
David Hume was a Scottish philosopher, economist and historian widely known for his system of philosophical empiricism and naturalism.
Alongside John Locke, Hume was one of the prominent British empiricists. Hume aimed to create a total natural science of man that assessed the psychological basis of human nature. Arguing against philosophical rationalists, Hume contended that it is passion, rather than reason, which governs human behaviour. He dismissed the existence of innate ideas, positing instead that all human knowledge is ultimately founded purely in experience. According to Hume, genuine knowledge is either directly traceable from objects perceived in experience or from abstract reasoning about relations between ideas which, themselves, are derived from experience; anything else is “nothing but sophistry and illusion”, a dichotomy known as Hume’s fork.
As for David Hume’s contributions to economics, his empirical argument against British mercantilism formed the building blocks for classical economics and current thinking on balance of payments issues. British mercantilists asserted that economic prosperity comes from maximising an economy’s gold; and this can be achieved by that economy limiting imports and encouraging exports. In the spirit of this, Britain traded with the American colonies, imported raw materials from them, manufactured those raw materials into finished products and exported the final goods back to the American consumers.
Hume, on the other hand, argued that net exporting, in exchange for gold currency, could not enhance an economy’s wealth. Hume’s argument formed the basis for the monetarist quantity theory of money. That is, prices in an economy change directly with changes in the money supply. As net exports rise and more gold flows into an economy, inflationary pressures start to bubble and prices rise in that economy. Consequently, the increase in domestic prices will discourage exports and encourage imports, automatically limiting the economy’s net exports: this is referred to as the price-specie-flow mechanism.
“Beauty in things exists in the mind which contemplates them.”
“Reason is, and ought only to be the slave of the passions, and can never pretend to any other office than to serve and obey them.”
“Nothing is more surprising than the easiness with which the many are governed by the few.”
– David Hume