Monetary Theory And Policy From Hume And Smith ... May 2026

: He famously described money as the "oil which renders the motion of the wheels more smooth," but not part of the wheels themselves. In the long run, doubling the money supply only doubles prices without increasing real wealth.

: Hume favored a 100% specie-reserve system for banks to prevent the artificial "paper-money" inflation that disrupts the natural flow of gold. 🏦 Adam Smith: Banking and the Real Bills Doctrine Monetary Theory and Policy from Hume and Smith ...

: If a country gains more gold (specie), its prices rise. This makes its exports expensive and imports cheap, causing gold to flow out until equilibrium is restored. : He famously described money as the "oil

The monetary theories of David Hume and Adam Smith represent the bedrock of classical economics, establishing how money interacts with prices, trade, and banking. While they were close friends, their views on how money impacts an economy differed significantly. David Hume: The Price-Specie Flow Mechanism 🏦 Adam Smith: Banking and the Real Bills