publication . Article . 2006

Hume and Endogenous Money

Maria Pia Paganelli;
Open Access
  • Published: 01 Jan 2006 Journal: Eastern Economic Journal, volume 32, issue 3 Summer, pages 533-547
Abstract
David Hume’s monetary theory has three 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. As a monetarist, Hume sees an active positive role for monetary policy only in the short run. This paper reads Hume consistently instead by showing that for Hume money is endogenous and demand-driven. Hume would read the money equation in terms of reverse causation and the co-movement of inflation and output growth as driven by demand. The tenets of 18th century monetary theory corroborate this reading.
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