ADAM SMITH AND THE SPECIE‐FLOW DOCTRINE
| Author | Robert V. Eagly |
| DOI | http://doi.org/10.1111/j.1467-9485.1970.tb00486.x |
| Published date | 01 February 1970 |
| Date | 01 February 1970 |
ADAM
SMITH
AND
THE
SPECIE-FLOW DOCTRINE
ROBERT
V.
EAGLY
I
In an uncharacteristically sweeping statement, Jacob Viner expresses the
view that Adam Smith made ‘no mention
in
the
Wealth
of
Nations
to the
self-regulating mechanism
in
terms of price levels and the trade balance,’
despite the fact that Smith
‘
was intimately acquainted with [David] Hume
and his writings.” Viner regards this as ‘one of the mysteries of the
history of economic thought.’a The interpretation has gone unchallenged
for over a generation,s though a good case can be made that Smith did
indeed incorporate the specie-flow mechanism in the
Wealth
of
Nations.
In order to provide a reassessment of Adam Smith’s use
of
the specie-flow
doctrine, this paper
will
(1) discuss Smith’s theory of aggregate demand
with respect to the foreign trade sector and international specie flows,
(2)
show that Smith’s analysis of international monetary adjustments in Book
IV
of
the
Wealth
of
Nations
(‘
On the Mercantile System
’)
takes the form
of
the specie-flow theory, and (3) indicate the nature of the problem
posed
for the operation
of
the specie-flow mechanism by Smith’s failure to provide
a theory of bank-note issue.
I1
That Adam Smith was well acquainted with David Hume’s
conceptualization of the specie-flow mechanism is documented by the
concise summary of Hume’s doctrine set down in Smith’s
Lectures on
Police, Justice, Revenue and
Arms.‘
It is noteworthy, however. that even
at this early date
(1763)
Smith was critical of Hume’s position. Specifically,
Smith accused Hume of
‘
having gone into the notion that public opulence
consists in money.” Quite possibly Smith objected to Hume’s contention
Jacob Viner,
Studies in the Theory
of
International Trade,
New
York,
(1937)
1965,
p.
87.
Ibid.
3The supposed absence
of
the specie-flow mechanism from the
Wealth
of
Nations
is discussed
by
Frank Petrella. (‘Adam Smith’s Rejection
of
Hume’s
Price Specie-Flow Mechanism
:
A
Minor Mystery Resolved
’,
Southern Economic
Journal,
Vol.
XXXIV,
January, 1968, pp. 365-374.) Petrella accepts Viner’s view
that Smith committed a crime
of
omission,
but
while Viner states that the specie-
flow dog did not bark in the
Wealth
of
Nations,
Petrella suggests reasons
for
the
canine
quiet.
‘Adam Smith,
Lectures
on
Justice, Police, Revenue and Arms.
Remrted bv a
student in 1763. Edited with an introduction and notes
by
Edwin Cainan
(18%).
New
York,
1964.
Ibid.,
p. 197.
61
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