From the beginnings of modern monetary theory, in David Hume’s marvelous essays of 1752, Of Money and Of Interest, conclusions about the effect
of changes in money have seemed to depend critically on the way in which
the change is effected. In formulating the doctrine that we now call the
quantity theory of money, Hume stressed the units-change aspect of changes
in the money stock, and the irrelevance of such changes to the behavior of
rational people. “It is indeed evident,” he wrote in Of Money, “that money is
nothing but the representation of labour and commodities, and serves only
as a method of rating or estimating them. Where coin is in greater plenty, as
a greater quantity of it is required to represent the same quantity of goods, it
can have no effect, either good or bad...any more than it would make an alteration on a merchant’s books, if, instead of the Arabian method of notation,which requires few characters, he should make use of the Roman, whic