Hume and Montesquieu on Commerce, Trade, and Moderation

Introduction: Two Enlightenment Visions of Commerce

David Hume and Baron de Montesquieu were two of the Enlightenment Era's most celebrated philosophers. These two men held remarkably innovative ideas regarding commerce — ideas that were similar in many ways, yet meaningfully different in others.

Hume's Gold-Flow Theory and Critique of Mercantilism

Renowned philosopher David Hume's Political Discourses essays presented an argument against the mercantilist theory, which insisted on retaining money only within one's own country (Penelhum, 1995). Hume's gold-flow theory argued that increased money in one country automatically circulates to other countries.

For example, according to Hume, if England receives an influx of new money, that money will increase the prices of labor and domestic products in England. As a result, foreign countries will offer cheaper products than England, which will then import those products, causing money to circulate outward to other countries.

Hume asserted that the same process occurs when a country loses money. If England loses money by purchasing imports from foreign countries, this will drive down the prices of labor and domestic products. As a result, England's products become cheaper than foreign ones, and the country regains money through exports.

Hume believed that a country's happiness and military strength are both dependent upon a strong industry. In peacetime, a robust workforce can produce luxuries and improve the arts, increasing national happiness. In time of war, that same workforce can serve in the military.

Hume also claimed that foreign trade both increases happiness and strengthens the military. Foreign trade familiarizes people with the pleasures of foreign luxuries, raising the quality of life within a country. It also expands industry, which strengthens the labor pool available for military service when needed.

Hume opposed the mercantilist theory because of its fear that national wealth is harmed whenever foreign neighbors prosper. Hume considered this view both morally and politically inaccurate. In his view, a country will prosper only when its neighboring countries also do well. He argued that a nation's export industry will decline unless its foreign neighbors have enough wealth to purchase its exports. Hume felt it was immoral and counterproductive to be jealous of another country's success.

According to Hume:

"Having endeavored to remove one species of ill-founded jealousy, which is so prevalent among commercial nations, it may not be amiss to mention another, which seems equally groundless. Nothing is more usual, among states which have made some advances in commerce, than to look on the progress of their neighbors with a suspicious eye, to consider all trading states as their rivals, and to suppose that it is impossible for any of them to flourish, but at their expense. In opposition to this narrow and malignant opinion, I will venture to assert, that the increase of riches and commerce in any one nation, instead of hurting, commonly promotes the riches and commerce of all its neighbors; and that a state can scarcely carry its trade and industry very far, where all the surrounding states are buried in ignorance, sloth, and barbarism." (Penelhum, p. 311)

Montesquieu on Commerce, Peace, and Political Moderation

The French philosopher Baron de Montesquieu held views similar to Hume's in several respects. Montesquieu developed the concept of a separation of powers and taught that "invisible wealth which could be sent everywhere" would force governments to govern with greater wisdom (Shackleton, 1995). Together, Hume and Montesquieu offered a moral and political argument for free trade, contending that commerce could elude violence and sustain itself wherever it took root.

According to Montesquieu, commerce was important to a country and its citizens for reasons that differed somewhat from Hume's. In the 18th century, commerce could escape the reach of rulers because invisible wealth could be transferred without a trace, making it impossible for rulers to fully control wealth through commerce.

Montesquieu also argued that commerce carried significant moral implications. The prospect of future trade discouraged merchants from engaging in unethical business practices. Moreover, commerce worked to bind individuals together rather than setting them against one another.

Montesquieu argued that capitalism, or the primacy of economic interests, would improve government and politics for several reasons. Most notably, the pursuit of commerce created tolerance by prioritizing the accumulation of wealth over the maintenance of destructive distinctions based on race, creed, and nationality.

Montesquieu further believed that commerce had the power to restrain excessive passions, since the wealth sacrificed by indulging such passions would prove too costly. The tendency toward war would, as a result, be moderated, because rulers stood to gain more by taxing commerce than by disrupting it. As Montesquieu stated, "the natural effect of commerce is to lead to peace" (Shackleton, p. 219).

According to Montesquieu:

"The spirit of commerce is frugality, economy, moderation, labor, prudence, tranquility, order, and rule. So long as this spirit subsists, the riches it produces have no bad effect. The mischief is when excessive wealth destroys the spirit of commerce; then it is that the inconveniences of inequality are felt." (p. 198)

Conclusion: Commerce, Balance, and the Good Society

Many Enlightenment philosophers understood that moderation was the key to a functioning society. This idea ties in directly with the ideas of commerce. A country with a healthy balance of trade enjoys favorable circumstances, while the opposite holds true for one with a poor balance.

A country can gain an enduring advantage by maintaining a favorable balance of trade. Therefore, across all societies, moderation is necessary if a country is to secure stability, happiness, and prosperity for itself and its citizens.