HUMES SPECIE-FLOW MECHANISM AND CLASSICAL MONETARY-THEORY - AN ALTERNATIVE INTERPRETATION

Hume's celebrated essay on the international distribution of money has always been criticized for ignoring the law of one price. Contrary to the traditional interpretation, however, Hume actually maintains that law and argues for the stability of long-run equilibrium. Putting mon ey market equilibrium in the foreground, hi's analysis is essentially founded on the same hypothesis as the modern monetary approach, albeit focusing on the supply rather than on the demand side of the money ma rket. (C) 1998 Elsevier Science B.V.