Of a Controversial Passage in Hume.

David Hume's (1955 ) analysis of how a change in the quantity of money can have a temporary effect on real income has been variously interpreted and misinterpreted for over two hundred years. A possible reason for some misinterpretation is Hume's archaic use of the term "labor." With the correct interpretation, which is consistent with Hume's other theories and in particular his theory ofthe interest rate, the reason for the temporary effect on real income is that prices lag behind money wages, and a rise in real wages leads to an increased supply of effort. Copyright 1987 by University of Chicago Press.