Term Paper on "David Hume Adam Smith Is Normally Noted"

Term Paper 6 pages (1956 words) Sources: 3 Style: MLA

[EXCERPT] . . . .

David Hume

Adam Smith is normally noted when discussing the beginnings of economics. However, it was his friend, David Hume, who wrote the " as part of Essays and Treatises, part 2 of Essays Moral and Political, who is believed to have been a major influence. Hume is probably the greatest philosopher to write in English, and it is chiefly as a philosopher that he is read in modern times (Chappell), not only because of his enlightened ideology, but because of his interests in the social sciences including economics as well as politics and literature and their place in the development of mankind. His philosophical writings were wide and deep, especially on the balance of trade and thoughts on mercantilism.

In the second half of the seventeenth century, the expanding importance of the production of marketable commodities in manufacture and agriculture began to dominate economic thought and government policy. Mercantilism gradually gave up going to other lands for new items for sale and instead focused on developing the productive strengths at home. The overseas nations were now seen as possible colonies that could supply the needed raw materials for national production (Beer).

As a result, the value of the things began to be measured by the necessary labor time used in their production. Things are of less value when they cost less labor, and to the contrary, things are expensive when their production requires a great deal of labor. Whatever the value of these items -- high or low -- they are always economical when produced with necessary labor time. Trade profits come from the exchange of things of less labor for things of more labor. Likewise, losses come from producing things with unnecessary labor time, for they are become so costly, they cannot be sold in a competitive market. Such trades are uneconomical and are a waste of labor.

The epitome of this process in action was the East India trade company, which bought things with less labor and sold them in European markets where the same or similar items could only be produced with more labor. East India goods were bought cheap and sold at a much higher price and thus yielded significant profits and returned considerably more bullion than spent on their purchase (ibid). In other words, during much of what is called the "mercantilist" period or "bullionist theory," growth consisted of a rise in the total amount of the circulating medium, such as silver and gold, within control of the state. This resulted in policies that force trade in a specific country, or by the acquisition of colonies that could supply inexpensive raw materials for manufacture and sale.

The argument arose whether manufacturing and production overseas would cause the mother countries to decline economically, because of the reduction of labor and the higher cost of goods. The opponents noted that in the long run, competition had a positive impact. Eventually the other countries would ramp up their production and begin to hire more labor and sell the items as well. The proponents or anti-mercantilists, including David Hume, saw the concept in a wider view, as associated with both trade economics and psychological aspects of human motivation.

Hume analyzed current economic concerns, recognizing that "trade was never esteemed an affair of state till the last century; and there scarcely is any ancient writer on politics who has made mention of it," (Hume) and warned scholars to be careful of believing in the economists' generalizations that were founded on the latest experiences that were not historically based. If one was to study the mercantilist theory and form an historical perspective, it would be possible to see the inadequate premises that were being espoused.

When analyzing the ramifications of trade between rich and poor countries, Hume differentiated from the situation where the riches come from a boon vs. one where the riches are earned from general ongoing production. When there is a windfall, the impact will just be to increase wages and costs in the richer nation, and it will export less and import more from the surrounding poorer countries. This will lower the initial gain in the balance of trade and make the rich nation become even more wealthy, since it is better off in relationship to manufacturing and trade and per capita income. The wealthier nation has greater labor productivity, since it boasts superior technology, trading networks, agricultural systems and overall infrastructure. Meanwhile, the poorer country, regardless of how much it wants to compete, does not have equal means to do so. It keeps on struggling, while the richer state continues to make, save and invest more and continues to get further ahead.

As Hume states in "Of Money" in Political Discourses:

Here then we may learn the fallacy of the remark, often to be met with in historians, and even in common conversation, that any particular state is weak, though fertile, populous, and well cultivated, merely because it wants money. It appears, that the want of money can never injure any state within itself: For men and commodities are the real strength of any community. It is the simple manner of living which here hurts the public, by confining the gold and silver to few hands, and preventing its universal diffusion and circulation. On the contrary, industry and refinements of all kinds incorporate it with the whole state, however small its quantity may be: They digest it into every vein, so to speak; and make it enter into every transaction and contract. No hand is entirely empty of it.

And as the prices of every thing fall by that means, the sovereign has double advantage: He may draw money by his taxes from every part of the state; and what he receives, goes farther in every purchase and payment.

This anti-mercantilist argument, called Hume's gold-flow theory, thus stipulates in contrast to mercantilists who supported keeping money in one's home country, since increased money in one country automatically disperses to other countries. Suppose, for example, stated Hume, that Great Britain received an influx of new money. It will push up prices of labor and domestic products in Great Britain. Products in other countries, then, will be cheaper than in Great Britain; Britain, meanwhile, will import these products, and thus send new money to foreign countries

Hume also argued against the current economists in terms of their thoughts on labor, class distinction and motivation. Despite the fact that Hume's overall understanding of the laborer and his motivation did not agree with current economic writings, a number of his most basic beliefs about the working class were very similar to these other economists. For example, he argued strongly that men who are placed within the lower ranks do not have chance of exerting any other virtues rather than being patient, resigned to their situation, and demonstrating integrity even when circumstances were fairly positive. In fact, he agreed with the mercantile philosophy that the actions of workers differed considerably from other men, by noting that in times of scarcity, the poor work harder and are better off than in times of abundance when they give away to indulgence and idleness (Bricke).

Similarly, Hume attested that poor laborers were not able to follow rational existence. He ardently expressed that work was the creative output of men and specifically associated productive activity to virtue and civilized existence. In "Of Refinement in the Arts," he wrote: "Thus industry, knowledge, and humanity, are linked together by an indissoluble chain, and are found, from experience as well as reason, to be peculiar to the more polished, and, what are commonly denominated, the more luxurious ages." Labor is the source of value, "He is the master workman who puts those several parts together; moves them according to just harmony and proportion; and produces true felicity as the result of their conspiring order," Hume adds in Essays, Moral, Political, and Literary.

Yet when he viewed labor from his middle class perspective and its historical experience, and combined that with his view of social life, Hume did not, as did the economists, see illogical labor as exemplifying their illogical nature, but instead attempted to understand social behavior in terms of these workers' interaction with their material environment. In the Treatise of Human Nature, Hume described men as problem-creating beings who set personal goals in order to satisfy their innate desires for achievement. When circumstances exist that offer fewer difficulties, men will not be motivated to exercise their potential.

Economic activity exemplified such problems. Men actively involved themselves in the pursuit of economic desires in order to fulfill the passion of greed, "an universal passion, which operates at all times, in all places, and upon all persons," as he noted in Essays, Moral, Political, and Literary. Involved in the quest of their own personal gain, men improve themselves materially and satisfy a need for work and betterment common to the race. He thus saw society made up of devious individuals following their economic interests. He described the world as… READ MORE

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