histofthought1

430 Economic thought before Adam Smithbetween interest rates and profit rates (i.e. the fundamental rates of return oninvestment). Here he points out correctly that 'no man will accept of lowprofits, where he can have high interest; and no man will accept of lowinterest where he can have high profits' . In short, interest and profit rates tendto be equal on the market. Very true, but which causes which, or what is theunderlying cause of both? Hume characteristically abandons the search forcause, and says that 'both arise from an extensive commerce, and mutuallyforward each other'. Bohm-Bawerk is surely right when he says that thisview is 'somewhat superficial'.9 But more than that: it is incorrect and reversescause and effect by stating that 'extensive commerce, by producinglarge stocks (capital), diminishes both interest and profits'. For there is noreason why larger stocks of capital should lower interest or profit rates; whatthey do lower is the prices of capital goods and consumer goods. The casualchain is the other way round: lower time-preference rates, which usually butnot always attend higher standards of living and greater prosperity, will causeboth capital to accumulate and profit and interest rates to fall. The two, as theAustrian School would later point out, are different sides of the same coin. toTurning to the other areas of economics, it is possible that some of thedeep flaws in Adam Smith's value theory were the result of David Hume'sinfluence. For Hume had no systematic theory of value, and had no ideawhatever of utility as a determinant of value. If anything, he kept stressingthat labour was the source of all value.On political economy, David Hume may be considered a free trader andopponent of mercantilism. A friend and mentor of Adam Smith from theirfirst meeting in 1752, Hume came to know the French laissez-fairists duringhis years in that country, and Turgot himself translated Hume's PoliticalDiscourses into French.15.5 NotesI. In the same year, 1718, Carmichael published a System (~lNatural Theology, and two yearslater produced an introduction to logic. In the year of his death he wrote a Synopsis (~lNatural Theology.2. A more concise but less effective version, an Introduction to Moral Philosophy, had beenpublished immediately after his death in 1747.3. Mandeville was a Dutch physician who spent much of his life in England. The Fable (~ltheBees was itself an expanded version of a satirical essay, The Grumbling Hive, or KnavesTurned Honest (1705).4. Fable (~lthe Bees (1924), p. 359. Cited in the excellent article by Salim Rashid, 'Mandeville'sFable: Laissez-faire or Libertinism?', Eighteenth-Century Studies, 18 (Spring 1985), p. 322.5. So bitter were the Anglican priests in Scotland at the governmental establishment ofPresbyterianism that they, as well as the Roman Catholics, formed the backbone of theJacobite rebels dedicated to the restoration of the Stuart monarchy in Great Britain.6. Professor Salerno attempts to justify Hume's curious assumption of a permanent tendencyto unemployed resources by applying the Alchian-AlJen information cost analysis. But thisapproach only explains the maintenance of any business inventory, inventory which, asSalerno shows, is not truly 'idle' but performs an important function to the businessman of