stated as follows: given the sum of the values of commodities, and the average rapidity of their metamorphoses, the quantity of precious metal current as money depends on the value of that precious metal. The erroneous opinion that it is, on the contrary, prices that are determined by the quantity of the circulating medium, and that the latter depends on the quantity of the precious metals in a country;[1] this opinion was based by those who first beheld it, on the absurd hypothesis that commodities are without a price, and money without a value, when they first enter into circulation, and that, once in the circulation, an aliquot part of the medley of commodities is exchanged for an aliquot part of the heap of precious metals.[2]
- ↑ "The prices of things will certainly rise in every nation, as the gold and silver increase amongst the people; and consequently, where the gold and silver decrease in any nation, the prices of all things must fall proportionably to such decrease of money." (Jacob Vanderlint: "Money answers all Things." Lond. 1734, p. 5.) A careful comparison of this book with Hume's "Essays," proved to my mind without doubt that Hume was acquainted with and made use of Vanderlint's work, which is certainly an important one. The opinion that prices are determined by the quantity of the circulating medium, was also held by Barbon and other much earlier writers. "No inconvenience," says Vanderlint, "can arise by an unrestrained trade, but very great advantage; since, if the cash of the nation be decreased by it, which prohibitions are designed to prevent, those nations that get the cash will certainly find everything advance in price, as the cash increases amongst them. And … our manufactures, and everything else, will soon become so moderate as to turn the balance of trade in our favour, and thereby fetch the money back again." (l. c, pp. 43, 44.)
- ↑ That the price of each single kind of commodity forms part of the sum of the
exchanges: as also, and principally, from the value of the smallest silver pieces of money; so in like manner, the proportion of money [gold and silver specie] requisite in our trade, is to be likewise taken from the frequency of commutations, and from the bigness of the payments." (William Petty. "A Treatise on Taxes and Contributions." Lond. 1663, p. 17.) The Theory of Hume was defended against the attacks of J. Steuart and others, by A. Young, in his "Political Arithmetic," Lond. 1774, in which work there is a special chapter entitled "Prices depend on quantity of money," at p. 112, sqq. I have stated in "Critique, &c.," p. 233: "He (Adam Smith) passes over without remark the question as to the quantity of coin in circulation, and treats money quite wrongly as a mere commodity." This statement applies only in so far as Adam Smith, ex officio, treats of money. Now and then, however, as in his criticism of the earlier systems of political economy, he takes the right view. "The quantity of coin in every country is regulated by the value of the commodities which are to be circulated by it.… The value of the goods annually bought and sold in any country requires a certain quantity of money to circulate and distribute them to their proper consumers, and can give employment to no more. The channel of circulation necessarily draws to itself a sum sufficient to fill it, and never admits any more." ("Wealth of Nations." Bk. IV., ch. I.) In like manner, ex officio, he opens his work with an apotheosis on the division of labour. Afterwards, in the last book which treats of the sources of public revenue, he occasionally repeats the denunciations of the division of labour made by his teacher, A. Ferguson.
