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From:
[log in to unmask] (Tony Brewer)
Date:
Fri Mar 31 17:18:46 2006
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The basic idea of the neutrality of money (though not in those words)  
surely stems from Hume. (Aristotle is much more abstract.) Hume wrote: 
 
'Money is not, properly speaking, one of the subjects of commerce; but only  
the instrument which men have agreed upon to facilitate the exchange of one  
commodity for another. . . If we consider any one kingdom by itself, it is  
evident, that the greater or less plenty of money is of no consequence;  
since the prices of commodities are always proportioned to the plenty of  
money, and a crown in HARRY VII's time served the same purpose as a pound  
does at present.' (Of Money, 1752) 
 
The price level is proportionate to the money stock, with no real effects  
(long-run neutrality). But Hume knew that (a) this only applies to a closed  
economy and (b) changes in the money stock have temporary real effects  
(short-run non-neutrality). 
 
Tony Brewer 
 
 
 
 

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