First, a question: Did David Hume understand the Law of Diminishing Marginal Utility? In the essay, he writes:
"When the sovereign raises an army, what is the consequence? He imposes a tax. This tax obliges all the people to retrench what is least necessary to their subsistence."
Edit: Hume's essay is actually entitled "Of Commerce."
Here's a link to the full essay: http://www.econlib.org/library/LFBooks/Hume/hmMPL24.html
Now I'll add some comments:
Hume's understanding of the relationship between the State and its subjects is especially perceptive. While he does not characterize the state as a parasite, he recognizes that "the public becomes powerful in proportion to the opulence and extensive commerce of private men."
Later, he introduces a concept that foreshadow's Albert Jay Nock's distinction between State power and social power. Hume writes:
"Here, therefore, seems to be a kind of opposition between the greatness of the state and the happiness of the subject. A state is never greater than when all its superfluous hands are employed in the service of the public. The ease and convenience of private persons require that these hands should be employed in their service. The one can never be satisfied but at the expense of the other. As the ambition of the sovereign must entrench on the luxury of individuals, so the luxury of individuals must diminish the force, and check the ambition of the sovereign."
And I must quote Hume's beautiful defense of free trade:
"If we consult history, we shall find, that in most nations foreign trade has preceded any refinement in home manufactures, and given birth to domestic luxury...The profit is also very great in exporting what is superfluous at home, and what bears no price, to foreign nations whose soil or climate is not favorable to that commodity. Thus men become acquainted with the pleasures of luxury, and the profits of commerce; and their delicacy and industry being once awakened, carry them on to further improvements in every branch of domestic as well as foreign trade; and this perhaps is the chief advantage which arises from a commerce with strangers. It rouses men from their indolence; and, presenting the gayer and more opulent part of the nation with objects of luxury which they never before dreamed of, raises in them a desire of a more splendid way of life than what their ancestors enjoyed. And at the same time, the few merchants who possessed the secret of this importation and exportation, make great profits, and, becoming rivals in wealth to the ancient nobility, tempt other adventurers to become their rivals in commerce. Imitation soon diffuses all those arts, while domestic manufacturers emulate the foreign in their improvements, and work up every home commodity to the utmost perfection of which it is susceptible. Their own steel and iron, in such laborious hands, become equal to the gold and rubies of the Indies."
It's enough to bring tears of joy to my eyes! I love how he describes successful entrepreneurship as a "secret" to be pursued by "adventurers."