On the Balance of Trade is an

economic An economy is an area of the production, distribution and trade, as well as consumption of goods and services. In general, it is defined as a social domain that emphasize the practices, discourses, and material expressions associated with th ...

text on

monetary economics Monetary economics is the branch of economics that studies the different competing theories of money: it provides a framework for analyzing money and considers its functions (such as medium of exchange, store of value and unit of account), and ...

that was written by

David Hume David Hume (; born David Home; 7 May 1711 NS (26 April 1711 OS) – 25 August 1776) Cranston, Maurice, and Thomas Edmund Jessop. 2020 999br>David Hume" '' Encyclopædia Britannica''. Retrieved 18 May 2020. was a Scottish Enlightenment ph ...

and published in 1752. In the book, Hume examines various mistakes committed by nations regarding trade and suggests better alternatives. The

thought experiments A thought experiment is a hypothetical situation in which a hypothesis, theory, or principle is laid out for the purpose of thinking through its consequences. History The ancient Greek ''deiknymi'' (), or thought experiment, "was the most anci ...

that Hume uses in the book are sometimes argued by modern economists to be the first formal economic models.

Argument

Hume starts out with an important point that touches upon a key fact of economics that many fail to recognize even in the 21st century: allowing the sale or export of a good actually increases its production. Economic activity in trade is not a fixed-slice pie but one in which freedom to trade can create more, rather than less: He uses, as example, the "ridiculous" behaviour 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, that is equilibration through the price-specie flow mechanism. In other words, money moves around where it is needed and forever seeks a balance. That means that a country does not need to limit exports or even imports because the money flowing out of the economy creates more demand for money, which helps to bring it back in.Murray N. Rothbard
David Hume and the Theory of Money"
Mises Daily Articles, 27 April 2011.

Impact

Hume's essay is the first known establishment of the concept of the Price-Specie Flow Mechanism. Perhaps still the best, it was cited by

Paul Krugman Paul Robin Krugman ( ; born February 28, 1953) is an American economist, who is Distinguished Professor of Economics at the Graduate Center of the City University of New York, and a columnist for ''The New York Times''. In 2008, Krugman was t ...

and

John Maynard Keynes John Maynard Keynes, 1st Baron Keynes, ( ; 5 June 1883 – 21 April 1946), was an English economist whose ideas fundamentally changed the theory and practice of macroeconomics and the economic policies of governments. Originally trained in ...

on one end of the political spectrum and by

Austrian economists The Austrian School is a heterodox school of economic thought that advocates strict adherence to methodological individualism, the concept that social phenomena result exclusively from the motivations and actions of individuals. Austrian school ...

on the other.

References

1752 books Books by David Hume Economics publications Monetary economics {{econ-book-stub