John Locke on Money, National Greatness and the Liberal Art of Liberal Government,

Silver is the instrument and measure of commerce in all the civilized and trading parts of the world.

It is the instrument of commerce by its intrinsic value.

The intrinsic value of silver, considered as money, is that estimate which common consent has placed on it, whereby it is made equivalent to all other things, and consequently is the universal barter, or exchange, which men give and receive for other things they would purchase or part with, for a valuable consideration; and thus, as the wise man tells us, money answers all things.--John Locke (1695) "Further Considerations Concerning Raising the Value of Money"

It is no doubt a bit odd to read that X is intrinsic of Y and that X is (a) an estimate of Y (b) and it (the estimate) is product of common consent. But it is less odd when we remind ourselves that X is not the intrinsic value of silver as such, but the intrinsic value of "silver, considered as money." And money here is a mechanism for the (possible) buying and selling of infinite diversity of (possible) goods.

In commenting on this passage, and Further Considerations more generally, Christine Desane writes, in her fascinating (2014) book Making Money: Coin, Currency, and the Coming of Capitalism, Locke's "argument put sovereigns in a place peripheral to international trade." (346) This matters to Desan's more general argument because Locke is the main source of what early in her book she describes as "the conventional creation story"* which she attributes to Marx and Menger alike (27-28).    

My interest here is not in the metaphysics of value,+ or the details of the implied mechanism, although both are important topics. Rather, I want to reflect a bit on Locke's underlying political vision. It is easy to imagine why Desan thinks that for Locke the origin of money is a convention  (350), and, with a nod to the Two Treatises, "an act of agreement prior even to the political consent that created society" (351; emphasis in Desan; for my analysis of the material in the Two Treatise see here). That is to say, on Desan's interpretation, "money's foundation" is "not political, not legal, but social." (353) By "locating agency over money in the consensus of strangers or people without politics, Locke offered the image of a medium that needed no collective engineering. (353) Since this fits with a certain kind of libertarian interpretation of Locke, one may well assume that Desan gets Locke right even though the argument of her book is that money is the product of collective engineering.

Now, before I criticize this account of Locke, it is important to note that Desan recognizes that Locke's account of the origin of money is not identical to his account of the maintenance of money. In particular, on her treatment of Locke, the sovereign does have one "certifying" (346) role in facilitating the use of money in commerce: "the ascertaining of its quantity by a public mark, the better to fit it for commerce," (quoted on p. 346 of Desan). As Locke puts it, the mark is a kind of "a public voucher, that a piece of such denomination is of such a weight, and of such a fineness, i. e. has so much silver in it." That is to say, for Locke the sovereign's role is to provide a collective good, by guarding over the quality of money and providing a public signal of it. 

As an aside, we see here Locke recognizing that the state (bureaucracy/institutions) needs itself to possess high quality skills. And the state's role is to secure common measures (by "public authority warranted") and accurate information about them. 

More important, one of the explicit goals of the state is to promote commerce. So, it is a bit odd to treat Locke as depoliticizing money when he articulates his account of money in terms of quite specific political aims (namely the promotion of commerce).  But so far, I have said nothing that Desan might disagree with.

More subtly, Desan treats money (and she is here echoing in part Locke's opponent Lowndes) as an "emphatically domestic"  affair. (348) It would, thus, be tempting to see in Locke's politics a cosmopolitan project because (and now again quoting Desan about Locke) "exchange was an international matter, and he evidently assumed that money was as well," (349).

And, indeed, in one sense Locke's ideal is cosmopolitan: "perhaps it would have been better for commerce in general, and more convenient for all their subjects, if the princes every-where, or at least in this part of the world, would at first have agreed on the fineness of the standard to have been just one-twelfth alloy, in round numbers; without those minuter fractions which are to be found in the alloy of most of the coin of the several distinct dominions of this part of the world." (partially quoted on p. 346 and p. 348 by Desan) It is not silly to see in Locke as the hypothetical forefather of the Euro (or, at least, the EMU/EMS). But notice that here Locke ascribes to princes/sovereigns political agency. And this is Locke's (counterfactual) ideal. 

Of course, in practice this did not happen. But it alerts us that Locke's argument may be more political than Desan (and certain libertarians) let on.** And, in fact, Locke's argument about the role of money in commerce is itself intrinsically political: 

Money also is necessary to us, in a certain proportion to the plenty of it amongst our neighbours. For, if any of our neighbours have it in a much greater abundance than we, we are many ways obnoxious to them. 1. They can maintain a greater force. 2. They can tempt away our people, by greater wages, to serve them, by land, or sea, or in any labour. 3. They can command the markets, and thereby break our trade, and make us poor. 4. They can on any occasion ingross naval and warlike stores, and thereby endanger us.

In countries where domestic mines do not supply it, nothing can bring in silver but tribute, or trade. Tribute is the effect of conquest: trade, of skill and industry.

By commerce silver is brought in, only by an overbalance of trade.

An overbalance of trade, is when the quantity of commodities, which we send to any country do more than pay for those we bring from thence: for then the overplus is brought home in bullion.

For, Locke's argument is that a strong currency is connected to a high wage ("greater wages"), productive labor force ("skill and industry"), export driven ("overbalance of trade") political economy, which allows for a growing population and, thereby,  a greater military (and more powerful economy).++ What's really new here -- judging by Desan's larger narrative -- is not the strong currency part. (It seems the UK elites were all in on a strong currency for close to half a millenium prior to Locke.) But rather that in virtue of a strong currency one can pay high wages and support a growing population. 

This not ad hoc in Locke. It echoes Locke's more instrumental defense of property rights as conducive to consumption and rising standards of living. In particular, it fits quite nicely with the details of Locke's 'Art of government' (recall my treatment of sections 41-42 of Second Treatise, chapter 5): (i) open borders that facilitate immigration, abundance in food, fertility/family friendly policies. (ii) And we can take him to be committed to policies that improve the skill-set of the workforce that is the stimulation of public or private provision of education. In arguing for Jewish emancipation (and immigration), Toland (recall) explicitly picks up on Locke's argument, but rather than focusing on high wages he focuses on falling prices for mass produced goods. 

So, let me wrap up. I have not here evaluated Locke's economics. And I also grant that it's possible that Locke was a bourgeois ideologue supporting mercantile Whig elites at the expense of everybody else (Desan relies heavily on Macpherson) with any argument available. But it strikes me that the more natural and consistent reading is that Locke thought that state policy should enrich the population. If done right (by focusing on a hard currency, educating for the right skills, and yes defending property rights) this would lock Britain into a virtuous cycle of growing trade, growing wages, growing populations, and growing political might. This is not a cosmopolitan argument in favor of trade (of the sort Kant or Smith might try out); rather it is a second-best argument for national greatness because the international sphere is characterized by power politics. Since Locke's approach puts Britain on the path of zero-sum, great power politics, it is an open question whether this can be called 'liberal' (cf.  411 in Desan; but that's for another occasion).

 

*Desan also suggests the "basic story" is "articulated by Adam Smith (24), but she immediately hedges her bets by suggesting "or attributed to him in some version (24). For when she discusses Smith, briefly, later in the book he is treated as a pragmatic proponent of fiat money.

+So, I  think Desan misrepresents Locke when she claims that "money became a commodity with intrinsic (metallic) value, engendered as a medium by the consensus of traders." (346) It's true that for Locke money is engendered as a medium by the consensus of traders, but so is the intrinsic value.

**In what follows, I ignore here Locke's arguments against nominalist or projects of devaluation. Because these do not undermine Desan's argument.

++I have to admit I thou

Comments

[John Quiggin]

I think you are reading too much into this. It reads like straightforward mercantilism to me. And while he supports population growth, I don't see here, or in the other passage you link to, any evidence of thinking about education and human capital. He sounds just like a large class of contemporary Australian politicians who want trade surpluses, a big population and a strong military, without any conscious theory

[Eric Schliesser]

Hi John,
Yes, it's quite natural to read Locke as a mercantilist here (which is why I say, at the end it is not obvious to call him a 'liberal'). But note he does explicitly advocate a high wage strategy and that is, I think, unusual for a mercantilist (note that even Toland, who explicitly relies on Locke, does not do that in the piece I link to). On the human capital stuff (not a word I used), I rely on section 42 of the Two Treatises for that argument (the part on the art of government). It should be linked above.
But I claim that Locke's mercantilism really is a second best theory--coordination by princes for European framework would better. (Admittedly that is speculative.)
And, finally, I agree that Locke sounds like a certain contemporary politicians here. But unlike them, I think he had to partially invent the framework.

[Bas van der Vossen]

Interesting post, Eric. For some time now, I've been wondering if Locke might be really a pivotal figure in the history of economic thought. Quite plainly, he starts out with the standard old Natural Law-type views on economics. (Exchange as zero-sum, etc.) That's in the Essays on the Laws of Nature, for example. The mercantilist reading would fit that. But throughout his life he seems to shift away from this and towards a more subjectivist, culminating in the quite radical Venditio, where economic value and exchange are understood in much more subjectivist terms.

So, I wonder about this interpretation you put forward here: is he endorsing a strategy of national glory / great power? Or is he just telling those in power: you guys care a lot about power, right? Well, then you should still do what I've been telling you is the right thing anyway.

One last thing: I'm not quite sure I see the opposition between (a) the idea that money is at least initially a social or conventional phenomenon (and therefore not essentially "political"), and (b) the claim that sovereign might have a salutary role to play with respect to money, i.e. the public goods provision you mention. Both claims seem to me perfectly consistent.

[Eric Schliesser]

Hi Bas,
I agree that Locke's impact on the history of economic thought is really underappreciated (by philosophers and even, perhaps, historians of economics). This is something I am slowly starting to recognize (in part due to your nudges).

I agree there is no inconsistency between (a) and (b). It's just that certain partial readers tend to downplay (b) and don't see how it fits into his larger political project (which attributes agency to policymakers).

[Jon Cooper]

Hi Eric, thanks for this great post. I've also been trying to grapple with the political vision underlying Locke's economic writings. I've recently published a piece (forgive the self-promotion) which looks at a neglected aspect of Locke's economic thought, which I think helps get to grips with that vision. Looking closely at Locke's thought on credit and the interest rate suggested to me that he balanced a resolve to establish secure property/ a strong circulating currency in England's national interest (part perhaps of a more cosmopolitan, divinely-ordained mission to cultivate the earth,) with an astute and deep concern for upholding interpersonal trust in social relations. Do take a look if you have a spare moment: https://www.cambridge.org/core/journals/historical-journal/article/credit-and-the-problem-of-trust-in-the-thought-of-john-locke-c-16681704/892F79609C5391BAF91F12A6D7D8128D

[Eric Schliesser]

Hi Jon,
I can be the last person to object to self-promotion! (Anyway thank you for the kind comments.) I just downloaded your paper and look forward to reading it before long. I am re-reading Emily Nacol's *An Age of Risk*, and she is also emphasizing Locke concern for upholding interpersonal trust in social relations while simultaneously noting how fragile that can be for Locke. (In case you have not seen it.)

[Jon Cooper]

Yes, definitely. Unfortunately I discovered Nacol's work only after writing that paper. But her focus on risk really clarifies for me that disjuncture between Locke's strict epistemic requirements for rationally trusting someone/something (whether a monarch or money), and the necessity of what Luhmann calls system trust (as a sort of unthinking, impersonal confidence) for complex modern institutions like banking and public credit to function.

[Emily Nacol]

I look forward to reading your article, too, Jon (if I may)! I am still thinking about some of these questions in Locke's work. I sometimes find it difficult to untangle the different forms of trust in play in Locke's work: interpersonal trust, trust in institutions (political or economic), and systemic trust of the kind you and Luhmann are writing about. As I said to Eric, I suppose this is a salutary feature of Locke's work, as these forms of trust are interlocking even as they are distinct. But I find it a challenge to tease them apart and look at them individually in his work.

While here, I will also add a couple of additional references to this conversation about money, interest, national greatness, and empire in Locke's thought.

Stefan Eich's work on money and trust in Locke's political thought seems very salient here!:

https://www.cambridge.org/core/journals/modern-intellectual-history/article/john-locke-and-the-politics-of-monetary-depoliticization/0FAFAC0884762E3C337D188439910101

Lucas Pinheiro has a new piece out that revisits the mercantilism question about Locke, and it situates him as a kind of agrarian proto-industrialist:

https://www.cambridge.org/core/journals/modern-intellectual-history/article/factory-afield-capitalism-and-empire-in-john-lockes-political-economy/FD6B1584129D54BCF6D64ACADD51B696

Thank you for this fruitful discussion!