Locke’s unscientific economics
In the late 17th century the English metallic medium of circulation was being clipped out of existence. Gresham’s law* was in operation for all to see as damaged silver coin passing current at face value drove sound coin out of circulation. The market price of silver bullion had risen above the mint price, the price paid in coin by the Royal Mint. The solution, said Treasury Secretary Lowndes, was to devalue the coinage. The method was to increase the face value of a coined ounce of silver from the current legal standard of 5 shillings 2 pence to its market price of 6 shillings 3 pence, thereby removing the premium accruing to the clippers. This would allow the coinage to circulate by removing the incentive to clip and melt it down.
The philosopher John Locke argued against this in the teeth of logic and evidence in the name of the sectional interest of those `with estates in money’ who principally stood to gain from an enhancement of the bullion content of the clipped coinage. Locke argued that the damaged coinage ought to be revalued, that its bullion content be effectively raised to restore a sacrosanct status quo ante. Locke’s monetary theory was bullionist. He argued that the bullion content of the coinage represented its `intrinsic value.’ In what may be considered an example of Gresham’s law applied to logic, bad argument drove out good. Locke, the politically well connected and rhetorically savvy professional wrangler, trumped Lowndes, the practical civil service economist.
The matter was put to the test to the delight of the clippers and currency speculators, who melted and exported the restored coinage, which continued as a dysfunctional and dubious medium of exchange. The Great Recoinage failed to repair the circulating medium. Domestic commerce was disrupted to the point of civil disturbance. Moreover the ability of the State to pay for military operations on the continent in the battle for world hegemony with Louis XIV was embarrassed. ‘No specific, intended goal of recoinage was achieved except for Locke’s abstract and novel one of turning a mint standard into an immutable fact of nature’.i The anti-empirical policy recommended by the great empiricist was objectively a total and abject failure as a fiscal policy measure,ii precisely because its objective was exquisitely ideological. The silver standard was effectively shattered by the Great Recoinage. Silver coin remained in disrepair throughout the eighteenth century. Only perversely was Locke to be a progenitor of the gold standard arrived at in the nineteenth century, when as the historian of the pound sterling reports 3 pounds 17 shillings and 10 pence – halfpenny came to be regarded as a magic price for gold, a dogma which would wreak its own baleful influence into the twentieth century.iii Locke was not a scientific economist but rather a father of one of the key shibboleths of bourgeois culture. The economic consequences of Mr Locke led onto those of Mr Churchill.iv
Yet Locke continues to be hailed in some quarters as a founder of ‘scientific’ economics. In fact he was primarily an important forefather of the weakness of conventional economics for special pleading for vested interests. The purpose of this article is to rehearse this under-appreciated historical case, drawing some sceptical conclusions; principally that our philosophical emperor, if not naked, is under dressed. It is further maintained that Locke the ideologist is a much more interesting historical figure than the traditional John Locke of liberal hagiography, the public spirited academic and apostle of the Enlightenmentv. Rather he was an intellectual activist of the revolutionary Whig party which formed first around Shaftesbury and successively around John Lord Somers and the parliamentary magnates who implemented the revolutionary settlement after 1688.vi
In 17th century England, the pulse of commercial life was quickening, and this led to a birth of economic debate on the mysteries of the market emerging from former customary relationships. Indeed `the increase in the number and kinds of market exchanges, with money as their measure, was perhaps the most striking social fact in the latter half of the century…Definitions of money also provided the context for a struggle for economic power, first between public authority and private entrepreneurs and subsequently between conflicting economic groups. Much of the fighting was waged through competing descriptions of reality…’vii This was certainly the case with Locke’s economics, and it is in these terms that its bruited scientific quality must be assessed.
When ‘Locke carried the day…money borrowed at ten or fourteen shillings to a guinea was repaid in guineas of twenty shillings.’viii A contemporary, Henry Layton, had made precisely this charge that Locke `extends his Care to Creditors and Landlords, not regarding the Cases of Tenants or Debtors; Men for this four or five years last passed have borrow’d many Thousand Pounds in Clipt Money, but he notes no unreasonableness or injustice in compelling them to pay such Debts again in Heavy Money, perhaps of twice the weight.’ix In the event the English silver currency, with an estimated face value of 4.7 million pounds, was reduced by reminting at the old standard to around 2.5 million pounds, inducing ‘the folly and disaster’, predicted by Locke’s critics, of a catastrophic restriction of the money supply.x
Marx understood that Locke was the spokesman for an emergent new class, composed of diverse sections of the old and the new order. In his economic writings `Locke was an advocate of the new bourgeoisie in all its forms, the manufacturers against the working classes and paupers, the commercial class against the old fashioned usurers, the financial aristocracy against the state debtors…’ Marx had no difficulty in citing to this effect the economist Sir James Steuart, who was of the view that the Great Recoinage had profited the state qua tax collector, `as well as the creditors upon their capitals and interest’ at the expense of the general public. But Marx went further. He maintained that Locke `went so far as to prove in his own work [as a philosopher] that bourgeois reason is the normal human reason…’xi This is the foundation statement of a sociological critique of the Essay on Human Understanding. Locke is identified as the titan who forged the received opinions of his class, that famous `common sense’, which as Russell famously expostulated, the English have had to the preclusion of all others ever since.xii
The author of the Essay was an agent of cultural coalescence of the bourgeoisie. It is a function apparent also in the Letters on Toleration of 1689, in which Locke features as the moderator of the religious divisions which had historically undermined efforts to consolidate a unifying class interest of the upper and middle orders of British society.xiii For Locke was terrified by the memory of the Civil War he had lived through in his youth, when he held that the lower orders had been brought into play `in the Male-administration of neglected or mismanag’d Government’ and ‘the usual Struggle and Contest’ between ‘the Landed-man and the Merchant…’
For the Labourer’s Share, being seldom more than a bare subsistence, never allows that Body of Men time or opportunity to raise their Thoughts above that, or struggle with the richer for theirs, (as one common Interest) unless when some common or great Distress, uniting them in one universal ferment, makes them forget respect, and emboldens them to carve to their Wants with armed force: And then sometimes they break in upon the Rich, and sweep all like a Deluge…xiv
Nor were such concerns about the entry of the masses into politics unprecedented. They had been central to the politics of the Civil Wars. When the parliamentary governor of Hull Sir John Hotham and his son defected to the King in 1643 the son explained their concern that if the Civil War went on ‘the mutinous people of the whole kingdom will presently rise in mighty numbers’ and ‘set up for themselves, to the utter ruin of all the nobility and gentry.’xv Indeed the King at the outset of the conflict with Parliament had made much of this perceived popular threat to the political elite in rationalizing his defence of monarchical prerogative in the context of socioeconomic unrest, publishing in his Answer to the Nineteen Propositions of the Commons the claim that an attack on the Crown would only encourage the common people, the mobile vulgus, to ‘set up for themselves call parity and independence liberty, destroy all rights and properties, all distinctions of families and merit’ and plunge the whole nation into `a dark equal chaos of confusion.’xvi Because of these fundamental concerns arising out of the trauma suffered by the ruling class during the Civil Wars, they had no stomach during the crises of the Restoration (the Popish Plot, the Rye House Plot and Monmouth’s Rebellion) for another fight with the Crown.xvii The conservative reaction in Britain to the French Revolution was of a piece with such concerns,xviii as is the modern neoliberal and conservative counter-revolution in defence of the indefensible born to rule mentality and economic free market dogma.xix All such ideologies seek essentially to reserve socioeconomic and political decision making to elite circles expressive of the prerogatives of private economic power at the expense of the public sector. The historical significance of Locke’s economic thought, not to say his opus generally, lies in this cultural domain.
Far from being a pioneering public spirited scientist above partisan concerns who in his economic writings ‘forcefully suspended all judgements of theology, morality and justice, to consider the economy as nothing more than an intricate mechanism’xx, Locke was a highly political economist. The enduring prejudice that political and ethical concerns are mere `externalities’ to economic thought was a significant but hardly scientific aspect of Locke’s economic ideology, and is itself political in nature.
The views he published at Somers’ behest during the Coinage Crisis after the Glorious Revolution dated from his early years in the Shaftesbury household when a bill embodying the merchant Sir Josiah Child’s proposals to restrict the rate of interest was introduced into the Commons in April 1668. Child’s Brief Observations concerning Trade & Interest of Money rationalized the aspirations of the East India Company which was experiencing difficulty in recapitalizing after the Second Anglo-Dutch War. The low interest rate Dutch economy was an object of envy and admiration. Child found it opportune to reason from the particular to the general, adopting the broad stance that `the Abatement of Interest is the Cause of the Prosperity and Riches of any Nation.’ Locke by contrast argued that far from being the `Cause of Riches’ interest was `only the Effect of them.’ Locke worked on his paper on interest until 1674, only publishing it as embodied in his writings on money during the Recoinage crisis. The Recoinage crisis was a monetary crisis of the early modern British economy. It affected the prime form of contemporary money, the coinage, a bullion based form of commodity money circulating at a face value in money of account. It thus incorporated a fiat element in terms of the issuing authority of the state as coiner incorporating utility and exchange value as a medium of exchange. Coinage was an historical form of money very different from the fiat money of today. Locke’s insistence that the bullion content of the clipped coinage be restored was rooted in the mistaken ‘common sense’ view that bullion was money. In fact only bullion monetized by the state as coin was money.
For essential context see Dickson The Financial Revolution. Dickson found that during the Recoinage crisis Somers’ government did not know what to do, and needed someone to be dogmatic to spare its blushes. Locke was prepared to be that dogmatist, and answered Somers’ call for advice. My study is essentially an historical study in how economic dogma passes current as science. It presupposes that money is an evolving historical phenomenon.
Dr David Faber is an ERA member, labour historian, and Visiting Research Fellow in the School of Economics of the University of Adelaide.
* Editorial addendum: Gresham’s law is an economic principle that states: “When a government compulsorily overvalues one type of money and undervalues another, the undervalued money will leave the country or disappear from circulation into hoards, while the overvalued money will flood into circulation.” It is commonly stated as: “Bad money drives out good”, but is more accurately stated: “Bad money drives out good if their exchange rate is set by law.”
i Appleby Economic Thought & Ideology in 17th C England, Princeton 1978 p235-6
ii Monetary historians Sargente & Velde report `Locke’s writings about the coinage belie his reputation as an empiricist philosopher…But politically Locke triumphed over Lowndes the empiricist.’ The Big Problem of Small Change Princeton 2002
iii See Feavear cited in Appleby p239
iv For discussion of the Gold standard debate between the wars see Skidelsky JM Keynes: The Economist as Saviour1920-37 MacMillan 1994 p153-207
v See Woolhouse Locke: A Biography Cambridge 2007 updating Cranston John Locke Longmans 1957
vi See Haley The First Earl of Shaftesbury Clarendon 1968 & Ashcraft Revolutionary Politics &Locke’s Two Treatises of Government Princeton 1986
vii Appleby p199 & 201
viii Marx A Contribution to the Critique of Political Economy CH Kerr & Co Chicago 1904 p93-4
ix Cited in Appleby p234
x Appleby p235. Sargente & Velde quote similar figures p286
xi Marx A Contribution to the Critique of Political Economy CH Kerr & Co Chicago 1904 p93-4. For a reading of the Essay on Human Understanding in much these terms focussing on `The Ideal of Bourgeois Man’ see Wood The Politics of Locke’s Philosophy Berkeley 1983. For a brief apology for Locke’s epistemology see Jeffrey’s John Locke: Prophet of Common Sense Methuen 1967 and extensively pere index in Russell History of Western Philosophy
xii Sargente & Velde point out that Locke, far from being modern, de facto `reverted to the medieval “communis opinio”’; op cit p263. The point, well made as to Locke’s economics, is prima facie extensible to his philosophy.
xiii Locke of course argued in general and universalistic terms, but addressed himself to the middle classes. See Marshall John Locke, Toleration & Early Enlightenment Culture CUP 2006 wherein it is noted that Locke argued that tolerance and moderate government of religious diversity pacified society and legitimized authority p546-8 1
xiv See Kelly ed Locke on Money OUP 1991 p290-91
xv Kenyon The Civil Wars of England Knopf NY 1988 p40
xvi Ibid p37
xvii Ibid p244-5
xviii Ibid p245
xix The classic original statement of modern traditionalist political conservatism is of course Burke’s Reflections on the Revolution in France. John Howard described himself as a `Burkean social conservative.’ For an accessible example of contemporary hard line neoliberalism see Judith Sloane’s columns in The Australian.
xx Letwin The Origins of Scientific Economics: English Economic Thought 1660 -1776 Methuen London 1963 p147