David Hume's Virtue Theory Of Money
David Hume and Adam Smith have both laid down essential monetary theories that form the basis of macroeconomics today. The quantity theory of money and the labour theory of value explained to humans how money affects us in our daily lives. Most people do not ponder over this in detail, but thanks to Hume and Smith, we can learn more about money’s role in economics by reading their essays (of money) and book (Wealth of Nations), respectively. According to David Hume, money is not a subject of commerce. It is just an instrument of commerce that enables people to exchange one good for another and produce more wealth. This means that money, paper or specie, just facilitates transactions because humans have formed a consensus over its ability to be used to buy or sell commodities. Hume follows this claim by introducing a theory which today is one of the foundations for macroeconomics: the quantity theory of money. He writes that “the prices of commodities are always proportioned to the plenty of money…” (Hume, II.III.1). This is very similar to the neo-classical quantity theory of money which also equates the price level being directly proportional to the money supply of a country. Hume’s quantity theory of money also challenged the mercantilist …show more content…
Labour is compensated by money, therefore the exchangeable value of all products is measured by the quantity of money, rather than the quantity of labour. This forms the bullion theory of value and the labour theory of value. The Bullion theory is dependent on the value of gold and solver which is sometimes more volatile than other commodities and harder to get. Therefore, it is not a very reliable theory to judge the value of a commodity. On the other hand, the labor theory works with equal quantities and value of labor, thus, making it more reliable to use because labour wages are decent benchmark for price levels as they have a nominal and real price. (Smith,
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