Of the Balance of Trade
On the Balance of Trade is an economic text on monetary economics, written by David Hume and published in 1752. In this book, Hume examines various mistakes committed by nations regarding trade, suggests better alternatives; the thought experiments Hume uses in the book are sometimes argued by modern economists to be the first formal economic models. Hume starts out with an important point that touches upon a key fact of economics that many fail to recognize in the 21st century: Allowing the sale or export of a good increases its production. Economic activity in trade is not a fixed-slice pie, but one where freedom to trade can create more, rather than less, he uses, as example, the ridiculous behavior of the ancient Athenian government, in banning the export of a certain kind of fig deemed too delicious for mere foreigners...but he goes on to cite similar errors in contemporary England and France, as well. In modern economic terms, this is equilibration through the price-specie flow mechanism.
In other words, money moves around. This means that not only does a country not need to limit exports, but need not limit imports, because the money flowing out of the economy will create more demand for money, helping bring it back in. Hume's essay is the first known establishment of the concept of the Price-Specie Flow Mechanism, still the best, cited by Paul Krugman and John Maynard Keynes on one end of the political spectrum, Austrian economists on the other
In economics, inflation is a sustained increase in the general price level of goods and services in an economy over a period of time. When the general price level rises, each unit of currency buys services; the measure of inflation is the inflation rate, the annualized percentage change in a general price index the consumer price index, over time. The opposite of inflation is deflation. Inflation affects economies in various negative ways; the negative effects of inflation include an increase in the opportunity cost of holding money, uncertainty over future inflation which may discourage investment and savings, if inflation were rapid enough, shortages of goods as consumers begin hoarding out of concern that prices will increase in the future. Positive effects include reducing unemployment due to nominal wage rigidity, allowing the central bank more leeway in carrying out monetary policy, encouraging loans and investment instead of money hoarding, avoiding the inefficiencies associated with deflation.
Economists believe that the high rates of inflation and hyperinflation are caused by an excessive growth of the money supply. Views on which factors determine low to moderate rates of inflation are more varied. Low or moderate inflation may be attributed to fluctuations in real demand for goods and services, or changes in available supplies such as during scarcities. However, the consensus view is that a long sustained period of inflation is caused by money supply growing faster than the rate of economic growth. Today, most economists favor a steady rate of inflation. Low inflation reduces the severity of economic recessions by enabling the labor market to adjust more in a downturn, reduces the risk that a liquidity trap prevents monetary policy from stabilizing the economy; the task of keeping the rate of inflation low and stable is given to monetary authorities. These monetary authorities are the central banks that control monetary policy through the setting of interest rates, through open market operations, through the setting of banking reserve requirements.
Rapid increases in the quantity of money or in the overall money supply have occurred in many different societies throughout history, changing with different forms of money used. For instance, when gold was used as currency, the government could collect gold coins, melt them down, mix them with other metals such as silver, copper, or lead, reissue them at the same nominal value. By diluting the gold with other metals, the government could issue more coins without increasing the amount of gold used to make them; when the cost of each coin is lowered in this way, the government profits from an increase in seigniorage. This practice would increase the money supply but at the same time the relative value of each coin would be lowered; as the relative value of the coins becomes lower, consumers would need to give more coins in exchange for the same goods and services as before. These goods and services would experience a price increase. Song Dynasty China introduced the practice of printing paper money to create fiat currency.
During the Mongol Yuan Dynasty, the government spent a great deal of money fighting costly wars, reacted by printing more money, leading to inflation. Fearing the inflation that plagued the Yuan dynasty, the Ming Dynasty rejected the use of paper money, reverted to using copper coins. Large infusions of gold or silver into an economy led to inflation. From the second half of the 15th century to the first half of the 17th, Western Europe experienced a major inflationary cycle referred to as the "price revolution", with prices on average rising sixfold over 150 years; this was caused by the sudden influx of gold and silver from the New World into Habsburg Spain. The silver spread throughout a cash-starved Europe and caused widespread inflation. Demographic factors contributed to upward pressure on prices, with European population growth after depopulation caused by the Black Death pandemic. By the nineteenth century, economists categorized three separate factors that cause a rise or fall in the price of goods: a change in the value or production costs of the good, a change in the price of money, a fluctuation in the commodity price of the metallic content in the currency, currency depreciation resulting from an increased supply of currency relative to the quantity of redeemable metal backing the currency.
Following the proliferation of private banknote currency printed during the American Civil War, the term "inflation" started to appear as a direct reference to the currency depreciation that occurred as the quantity of redeemable banknotes outstripped the quantity of metal available for their redemption. At that time, the term inflation referred to the devaluation of the currency, not to a rise in the price of goods; this relationship between the over-supply of banknotes and a resulting depreciation in their value was noted by earlier classical economists such as David Hume and David Ricardo, who would go on to examine and debate what effect a currency devaluation has on the price of goods. The adoption of fiat currency by many countries, from the 18th century onwards, made much larger variations in the supply of money possible. Rapid increases in the money supply have taken place a number of times in countries experiencing political crises, produ
A Treatise of Human Nature
A Treatise of Human Nature is a book by Scottish philosopher David Hume, considered by many to be Hume's most important work and one of the most influential works in the history of philosophy. The Treatise is a classic statement of philosophical empiricism and naturalism. In the introduction Hume presents the idea of placing all science and philosophy on a novel foundation: namely, an empirical investigation into human nature. Impressed by Isaac Newton's achievements in the physical sciences, Hume sought to introduce the same experimental method of reasoning into the study of human psychology, with the aim of discovering the "extent and force of human understanding". Against the philosophical rationalists, Hume argues that passion rather than reason governs human behaviour, he introduces the famous problem of induction, arguing that inductive reasoning and our beliefs regarding cause and effect cannot be justified by reason. Hume defends a sentimentalist account of morality, arguing that ethics is based on sentiment and passion rather than reason, famously declaring that "reason is, ought only to be the slave to the passions".
Hume offers a skeptical theory of personal identity and a compatibilist account of free will. Contemporary philosophers have written of Hume that "no man has influenced the history of philosophy to a deeper or more disturbing degree", that Hume's Treatise is "the founding document of cognitive science" and the "most important philosophical work written in English." However, the public in Britain at the time did not agree, nor in the end did Hume himself agree, reworking the material in An Enquiry Concerning Human Understanding and An Enquiry Concerning the Principles of Morals. In the Author's introduction to the former, Hume wrote: “Most of the principles, reasonings, contained in this volume, were published in a work in three volumes, called A Treatise of Human Nature: a work which the Author had projected before he left College, which he wrote and published not long after, but not finding it successful, he was sensible of his error in going to the press too early, he cast the whole anew in the following pieces, where some negligences in his former reasoning and more in the expression, are, he hopes, corrected.
Yet several writers who have honoured the Author’s Philosophy with answers, have taken care to direct all their batteries against that juvenile work, which the author never acknowledged, have affected to triumph in any advantages, they imagined, they had obtained over it: A practice contrary to all rules of candour and fair-dealing, a strong instance of those polemical artifices which a bigotted zeal thinks itself authorized to employ. Henceforth, the Author desires, that the following Pieces may alone be regarded as containing his philosophical sentiments and principles.” Regarding An Enquiry Concerning the Principles of Morals, Hume said: "of all my writings, philosophical, or literary, incomparably the best." Hume's introduction presents the idea of placing all science and philosophy on a novel foundation: namely, an empirical investigation into human psychology. He begins by acknowledging "that common prejudice against metaphysical reasonings ", a prejudice formed in reaction to "the present imperfect condition of the sciences".
But since the truth "must lie deep and abstruse" where "the greatest geniuses" have not found it, careful reasoning is still needed. All sciences, Hume continues depend on "the science of man": knowledge of "the extent and force of human understanding... the nature of the ideas we employ, and... the operations we perform in our reasonings" is needed to make real intellectual progress. So Hume hopes "to explain the principles of human nature", thereby "propos a compleat system of the sciences, built on a foundation entirely new, the only one upon which they can stand with any security." But an a priori psychology would be hopeless: the science of man must be pursued by the experimental methods of the natural sciences. This means we must rest content with well-confirmed empirical generalizations, forever ignorant of "the ultimate original qualities of human nature", and in the absence of controlled experiments, we are left to "glean up our experiments in this science from a cautious observation of human life, take them as they appear in the common course of the world, by men's behaviour in company, in affairs, in their pleasures."
Hume begins by arguing that each simple idea is derived from a simple impression, so that all our ideas are derived from experience: thus Hume accepts concept empiricism and rejects the purely intellectual and innate ideas found in rationalist philosophy. Hume's doctrine draws on two important distinctions: between impressions and ideas, between complex perceptions and simple perceptions. Our complex ideas, may not directly correspond to anything in experience, but each simple idea directly corresponds to a simple impression resembling it—and this regular correspondence suggests that the two are causally connected. Since the simple impressions come before the simple ideas, since those without functioning senses end up lacking the corresponding ideas, Hume concludes that simple ideas must be
An Enquiry Concerning Human Understanding
An Enquiry Concerning Human Understanding is a book by the Scottish empiricist philosopher David Hume, published in English in 1748. It was a revision of an earlier effort, Hume's A Treatise of Human Nature, published anonymously in London in 1739–40. Hume was disappointed with the reception of the Treatise, which "fell dead-born from the press," as he put it, so tried again to disseminate his more developed ideas to the public by writing a shorter and more polemical work; the end product of his labours was the Enquiry. The Enquiry dispensed with much of the material from the Treatise, in favor of clarifying and emphasizing its most important aspects. For example, Hume's views on personal identity do not appear. However, more vital propositions, such as Hume's argument for the role of habit in a theory of knowledge, are retained; this book has proven influential, both in the years that would follow and today. Immanuel Kant points to it as the book which woke him from his self-described "dogmatic slumber."
The Enquiry is regarded as a classic in modern philosophical literature. The argument of the Enquiry proceeds by a series of incremental steps, separated into chapters which logically succeed one another. After expounding his epistemology, Hume explains. In the first section of the Enquiry, Hume provides a rough introduction to philosophy as a whole. For Hume, philosophy can be split into two general parts: natural philosophy and the philosophy of human nature; the latter investigates both thoughts. He emphasizes in this section, by way of warning, that philosophers with nuanced thoughts will be cast aside in favor of those whose conclusions more intuitively match popular opinion. However, he insists, precision helps art and craft including the craft of philosophy. Next, Hume discusses the distinction between ideas. By "impressions", he means sensations, while by "ideas", he means imaginings. According to Hume, the difference between the two is. For example, the idea of the taste of an orange is far inferior to the impression of eating one.
Writing within the tradition of empiricism, he argues. Hume accepts that ideas may be either the product of mere sensation, or of the imagination working in conjunction with sensation. According to Hume, the creative faculty makes use of four mental operations which produce imaginings out of sense-impressions; these operations are compounding. In a chapter, he mentions the operations of mixing and dividing. However, Hume admits that there is one objection to his account: the problem of "The Missing Shade of Blue". In this thought-experiment, he asks us to imagine a man who has experienced every shade of blue except for one, he predicts that this man will be able to divine the color of this particular shade of blue, despite the fact that he has never experienced it. This seems to pose a serious problem for the empirical account, though Hume brushes it aside as an exceptional case by stating that one may experience a novel idea that itself is derived from combinations of previous impressions. In this chapter, Hume discusses.
He explains that there are at least three kinds of associations between ideas: resemblance, contiguity in space-time, cause-and-effect. He argues that there must be some universal principle that must account for the various sorts of connections that exist between ideas. However, he does not show what this principle might be. In the first part, Hume discusses how the objects of inquiry are either "relations of ideas" or "matters of fact", the distinction between analytic and synthetic propositions; the former, he tells the reader, are proved by demonstration, while the latter are given through experience. In explaining how matters of fact are a product of experience, he dismisses the notion that they may be arrived at through a priori reasoning. For Hume, every effect only follows its cause arbitrarily—they are distinct from one another. In part two, Hume inquires into how anyone can justifiably believe that experience yields any conclusions about the world: "When it is asked, What is the nature of all our reasonings concerning matter of fact? the proper answer seems to be, that they are founded on the relation of cause and effect.
When again it is asked, What is the foundation of all our reasonings and conclusions concerning that relation? it may be replied in one word, experience. But if we still carry on our sifting humor, ask, What is the foundation of all conclusions from experience? this implies a new question, which may be of more difficult solution and explication." He shows how a satisfying argument for the validity of experience can be based neither on demonstration nor experience. Here he is describing. For Hume, we assume that experience tells us something about the world because of habit or
The is–ought problem, as articulated by the Scottish philosopher and historian David Hume, states that many writers make claims about what ought to be, based on statements about what is. Hume found that there seems to be a significant difference between positive statements and prescriptive or normative statements, that it is not obvious how one can coherently move from descriptive statements to prescriptive ones; the is–ought problem is known as Hume's law, Hume's guillotine or fact–value gap. A similar view is defended by G. E. Moore's open-question argument, intended to refute any identification of moral properties with natural properties; this so-called naturalistic fallacy stands in contrast to the views of ethical naturalists. Hume discusses the problem in book III, part I, section I of his book, A Treatise of Human Nature: In every system of morality, which I have hitherto met with, I have always remarked, that the author proceeds for some time in the ordinary way of reasoning, establishes the being of a God, or makes observations concerning human affairs.
This change is imperceptible. For as this ought, or ought not, expresses some new relation or affirmation,'tis necessary that it should be observed and explained, but as authors do not use this precaution, I shall presume to recommend it to the readers. Hume calls for caution against such inferences in the absence of any explanation of how the ought-statements follow from the is-statements, but how can an "ought" be derived from an "is"? The question, prompted by Hume's small paragraph, has become one of the central questions of ethical theory, Hume is assigned the position that such a derivation is impossible; this complete severing of "is" from "ought" has been given the graphic designation of Hume's Guillotine. The apparent gap between "is" statements and "ought" statements, when combined with Hume's fork, renders "ought" statements of dubious validity. Hume's fork is the idea that all items of knowledge are based either on logic and definitions, or else on observation. If the is–ought problem holds "ought" statements do not seem to be known in either of these two ways, it would seem that there can be no moral knowledge.
Moral skepticism and non-cognitivism work with such conclusions. Ethical naturalists contend that moral truths exist, that their truth value relates to facts about physical reality. Many modern naturalistic philosophers see no impenetrable barrier in deriving "ought" from "is", believing it can be done whenever we analyze goal-directed behavior, they suggest that a statement of the form "In order for agent A to achieve goal B, A reasonably ought to do C" exhibits no category error and may be factually verified or refuted. "Oughts" exist in light of the existence of goals. A counterargument to this response is that it pushes back the'ought' to the subjectively valued'goal' and thus provides no fundamentally objective basis to one's goals which, provides no basis of distinguishing moral value of fundamentally different goals. A possible basis for an objective, moral realist, morality might be an appeal to teleonomy; this is similar to work done by moral philosopher Alasdair MacIntyre, who attempts to show that because ethical language developed in the West in the context of a belief in a human telos—an end or goal—our inherited moral language, including terms such as good and bad, have functioned, function, to evaluate the way in which certain behaviors facilitate the achievement of that telos.
In an evaluative capacity, therefore and bad carry moral weight without committing a category error. For instance, a pair of scissors that cannot cut through paper can legitimately be called bad since it cannot fulfill its purpose effectively. If a person is understood as having a particular purpose behaviour can be evaluated as good or bad in reference to that purpose. In plainer words, a person is acting good. If the concept of an "ought" is meaningful, this need not involve morality; this is. A poisoner might realize his victim has not died and say, for example, "I ought to have used more poison," since his goal is to murder; the next challenge of a moral realist is thus to explain what is meant by a "moral ought". Proponents of discourse ethics argue that the act of discourse implies certain "oughts", that is, certain presuppositions that are accepted by the participants in discourse, can be used to further derive prescriptive statements, they therefore argue that it is incoherent to argumentatively advance an ethical position on the basis of the is–ought problem, which contradicts these implied assumptions.
As MacIntyre explained, someone may be called a good person. Many ethical systems appeal to such a purpose; this is true of some forms of moral realism, which states that something can be wrong if every thinking person believes otherwise. The ethical realist might su
The Scottish Enlightenment was the period in 18th and early 19th century Scotland characterised by an outpouring of intellectual and scientific accomplishments. By the eighteenth century, Scotland had a network of parish schools in the Lowlands and four universities; the Enlightenment culture was based on close readings of new books, intense discussions took place daily at such intellectual gathering places in Edinburgh as The Select Society and The Poker Club as well as within Scotland's ancient universities. Sharing the humanist and rationalist outlook of the European Enlightenment of the same time period, the thinkers of the Scottish Enlightenment asserted the importance of human reason combined with a rejection of any authority that could not be justified by reason. In Scotland, the Enlightenment was characterised by a thoroughgoing empiricism and practicality where the chief values were improvement and practical benefit for the individual and society as a whole. Among the fields that advanced were philosophy, political economy, architecture, geology, law, agriculture and sociology.
Among the Scottish thinkers and scientists of the period were Francis Hutcheson, David Hume, Adam Smith, Dugald Stewart, Thomas Reid, Robert Burns, Adam Ferguson, John Playfair, Joseph Black and James Hutton. The Scottish Enlightenment had effects far beyond Scotland, not only because of the esteem in which Scottish achievements were held outside Scotland, but because its ideas and attitudes were carried all over Europe and across the Atlantic world as part of the Scottish diaspora, by European and American students who studied in Scotland; the roots of the Scottish Enlightenment can be traced to the seventeenth century, when there was impressive Scottish activity and engagement in law, science and economics with the European continent. The Scottish Enlightenment of the eighteenth and nineteenth centuries was a natural development of this earlier engagement and advancement of knowledge. Union with England in 1707 meant the end of the Scottish Parliament; the parliamentarians, politicians and placemen moved to London.
Scottish law, remained separate from English law, so the civil law courts and jurists remained in Edinburgh. The headquarters and leadership of the Church of Scotland remained, as did the universities and the medical establishment; the lawyers and the divines, together with the professors, medical men and architects formed a new middle class elite that dominated urban Scotland and facilitated the Scottish Enlightenment. At the union of 1707, England had about five times the population of Scotland and about 36 times as much wealth, but there were four Scottish universities against two English. Scotland experienced the beginnings of economic expansion. Contacts with England led to a conscious attempt to improve agriculture among the gentry and nobility. Although some estate holders improved the quality of life of their displaced workers, enclosures led to unemployment and forced migrations to the burghs or abroad; the major change in international trade was the rapid expansion of the Americas as a market.
Glasgow benefited from this new trade. The merchants dealing in this lucrative business became the wealthy tobacco lords, who dominated the city for most of the eighteenth century. Banking developed in this period; the Bank of Scotland, founded in 1695 was suspected of Jacobite sympathies, so a rival Royal Bank of Scotland was founded in 1727. Local banks began to be established in burghs like Ayr; these made capital available for business, the improvement of roads and trade. The humanist-inspired emphasis on education in Scotland culminated in the passing of the Education Act 1496, which decreed that all sons of barons and freeholders of substance should attend grammar schools; the aims of a network of parish schools were taken up as part of the Protestant programme in the 16th century and a series of acts of the Privy Council and Parliament in 1616, 1633, 1646 and 1696 attempted to support its development and finance. By the late 17th century there was a complete network of parish schools in the Lowlands, but in the Highlands basic education was still lacking in many areas.
One of the effects of this extensive network of schools was the growth of the "democratic myth", which in the 19th century created the widespread belief that many a "lad of pairts" had been able to rise up through the system to take high office, that literacy was much more widespread in Scotland than in neighbouring states England. Historians are now divided over whether the ability of boys who pursued this route to social advancement was any different than that in other comparable nations, because the education in some parish schools was basic and short, attendance was not compulsory. Regardless of what the literacy rate was, it is clear that many Scottish students learned a useful form of visual literacy that allowed them to organise and remember information in a superior fashion. By the 17th century, Scotland had five universities, compared with England's two. After the disruption of the civil wars and purges at the Restoration, they recovered with a lecture-based curriculum, able to embrace economics and science, offering a high quality liberal education to the sons of the nobility and gentry.
All saw the establishment or re
A gold standard is a monetary system in which the standard economic unit of account is based on a fixed quantity of gold. Three types can be distinguished: specie and exchange. In the gold specie standard the monetary unit is associated with the value of circulating gold coins, or the monetary unit has the value of a certain circulating gold coin, but other coins may be made of less valuable metal; the gold bullion standard is a system in which gold coins do not circulate, but the authorities agree to sell gold bullion on demand at a fixed price in exchange for the circulating currency. The gold exchange standard does not involve the circulation of gold coins; the main feature of the gold exchange standard is that the government guarantees a fixed exchange rate to the currency of another country that uses a gold standard, regardless of what type of notes or coins are used as a means of exchange. This creates a de facto gold standard, where the value of the means of exchange has a fixed external value in terms of gold, independent of the inherent value of the means of exchange itself.
Most nations abandoned the gold standard as the basis of their monetary systems at some point in the 20th century, although many hold substantial gold reserves. A 2012 survey of leading economists showed that they unanimously reject that a return to the gold standard would benefit the average American; the gold specie standard arose from the widespread acceptance of gold as currency. Various commodities have been used as money. Chemically, gold is of all major metals the one most resistant to corrosion; the use of gold as money began thousands of years ago in Asia Minor. During the early and high Middle Ages, the Byzantine gold solidus known as the bezant, was used throughout Europe and the Mediterranean. However, as the Byzantine Empire's economic influence declined, so too did the use of the bezant. In its place, European territories chose silver as their currency over gold, leading to the development of silver standards. Silver pennies based on the Roman denarius became the staple coin of Mercia in Great Britain around the time of King Offa, circa 757–796 CE.
Similar coins, including Italian denari, French deniers, Spanish dineros, circulated in Europe. Spanish explorers discovered silver deposits in Mexico in 1522 and at Potosí in Bolivia in 1545. International trade came to depend on coins such as the Spanish dollar, the Maria Theresa thaler, the United States trade dollar. In modern times, the British West Indies was one of the first regions to adopt a gold specie standard. Following Queen Anne's proclamation of 1704, the British West Indies gold standard was a de facto gold standard based on the Spanish gold doubloon. In 1717, Sir Isaac Newton, the master of the Royal Mint, established a new mint ratio between silver and gold that had the effect of driving silver out of circulation and putting Britain on a gold standard. A formal gold specie standard was first established in 1821, when Britain adopted it following the introduction of the gold sovereign by the new Royal Mint at Tower Hill in 1816; the United Province of Canada in 1854, Newfoundland in 1865, the United States and Germany in 1873 adopted gold.
The United States used the eagle as its unit, Germany introduced the new gold mark, while Canada adopted a dual system based on both the American gold eagle and the British gold sovereign. Australia and New Zealand adopted the British gold standard, as did the British West Indies, while Newfoundland was the only British Empire territory to introduce its own gold coin. Royal Mint branches were established in Sydney and Perth for the purpose of minting gold sovereigns from Australia's rich gold deposits; the gold specie standard came to an end in the United Kingdom and the rest of the British Empire with the outbreak of World War I. From 1750 to 1870, wars within Europe as well as an ongoing trade deficit with China drained silver from the economies of Western Europe and the United States. Coins were struck in smaller and smaller numbers, there was a proliferation of bank and stock notes used as money. In the 1790s, the United Kingdom suffered a silver shortage, it ceased to mint larger silver coins and instead issued "token" silver coins and overstruck foreign coins.
With the end of the Napoleonic Wars, the Bank of England began the massive recoinage programme that created standard gold sovereigns, circulating crowns, half-crowns and copper farthings in 1821. The recoinage of silver after a long drought produced a burst of coins; the United Kingdom struck nearly 40 million shillings between 1816 and 1820, 17 million half crowns and 1.3 million silver crowns. The 1819 Act for the Resumption of Cash Payments set 1823 as the date for resumption of convertibility, reached by 1821. Throughout the 1820s, small notes were issued by regional banks; this was restricted in 1826. In 1833 however, Bank of England notes were made legal tender and redemption by other banks was discouraged. In 1844, the Bank Charter Act established that Bank of England notes were backed by gold and they became the legal standard. According to the strict interpretation of the gold standard, this 1844 act marked the establishment of a full gold standard for British money. In the 1780s, Thomas Jefferson, Robert Morris and Alexander Hamilton recommended to Congress the value of a decimal system.
This system would apply to monies in the United States. The question was what type of standard: silver or both; the United States adopted a silver standard based on the Spanish milled dollar i