'The Good Policy of the Magistrate': Deflation as a Policy Option in David Hume's Economic Essays

In his 1752 essay “Of Money”, David Hume proposes that a “good policy” for a magistrate would be to keep money “still encreasing.” This paper proposes that, for Hume, money can be kept “still encreasing” through deflationary policies, rather than through inflationary policies as commonly presented in the literature. Decreasing the quantity of money in circulation in an open economy decreases prices and gives a competitive edge to the country’s products. The increase in exports “keeps money still encreasing.” Deflation may be achieved through the promotion of hoarding and non-monetary uses of precious metals. The position of this paper is derived from a close reading of Hume’s texts, an analysis of his examples, and an examination of some 18 century beliefs on money.