WEBVTT NOTE 11. Mercantilism and Freedom in England from the Civil War to 1750 (continued) 1 00:00:00.000 --> 00:00:09.800 4. The North Brothers, Deductions from Axioms and Tory Laissez-Faire 2 00:00:09.800 --> 00:00:15.360 Weighing in on the side of John Locke, not only on interest rates but also in a general 3 00:00:15.360 --> 00:00:23.000 and comprehensive vision of economic laissez-faire that even surpassed Locke, were two brothers, 4 00:00:23.000 --> 00:00:28.880 Dudley and Roger North, who came from a distinguished Tory family. 5 00:00:28.880 --> 00:00:35.400 Here was a fascinating convergence of views of a radical Whig and high Tories and zealous 6 00:00:35.400 --> 00:00:38.860 subjects of Charles and James II. 7 00:00:38.860 --> 00:00:45.520 This juncture presaged a later meeting of minds of extreme left and extreme right during 8 00:00:45.520 --> 00:00:56.360 the 18th century, when the imperialist Whig-mercantilist one-party establishment from 1715 to the 1750s 9 00:00:56.360 --> 00:01:17.360 is Opposed on the Left by Radical Libertarian Commonwealthmen, and on the Right by the Anti-Imperialist, Catholic or Proto-Catholic Opposition, all agreeing on denunciations of the mercantilistic, high-tax, high-public debt, central banking state. 10 00:01:17.360 --> 00:01:22.660 Dudley and Roger North were sons of the 4th Baron North. 11 00:01:22.660 --> 00:01:32.460 Showing little aptitude for schooling, Dudley, 1641-1691, went to Turkey and became a prominent trader, 12 00:01:32.460 --> 00:01:39.960 as well as a director of both the Levant Company, which had been granted a monopoly of English trade with the Middle East, 13 00:01:39.960 --> 00:01:45.960 and the African Company, which enjoyed a monopoly of trade with that continent. 14 00:01:45.960 --> 00:02:08.960 Deadly North returned to London from Turkey in 1681, just in time to aid King Charles and his elder brother, Francis, Lord Guilford, 1637-1685, in the patriotic cause of trying to indict John Locke's patron, Lord Shaftesbury, on the charge of treason. 15 00:02:08.960 --> 00:02:28.960 Francis, a distinguished jurist, had risen swiftly from Solicitor General to Attorney General, to Lord Chief Justice of the Common Please, and, finally, in 1682, at the age of 45, to Lord Keeper of the Great Seal, the highest law office in England. 16 00:02:28.960 --> 00:02:37.160 Indictments for treason had to be handed down by grand juries appointed by sheriffs of London, 17 00:02:37.160 --> 00:02:45.120 and so Dudley North, in a famous and irregular election, ran for and was elected sheriff, 18 00:02:45.120 --> 00:02:50.920 after which he and his juries became scourges of the Whig party. 19 00:02:50.920 --> 00:02:56.640 At the end of the year Dudley North was knighted by the King for his services and soon rose 20 00:02:56.640 --> 00:03:02.380 Those in Appointive Office, Becoming Commissioner of the Customs, Member of Parliament and 21 00:03:02.380 --> 00:03:08.480 Manager for King James II of All Revenue Matters in Parliament. 22 00:03:08.480 --> 00:03:13.560 Toward the end of his brief but distinguished term in government service, Sir Dudley was 23 00:03:13.560 --> 00:03:20.100 inspired to think deeply about the two main monetary and financial questions agitating 24 00:03:20.100 --> 00:03:29.020 in Parliament, The 1690 Law to Push Down the Rate of Interest, and the Recoinage Question. 25 00:03:29.020 --> 00:03:36.780 Dudley wrote two discourses upon trade in 1691, one on interest and one on coinage, 26 00:03:36.780 --> 00:03:42.260 along with a postscript that was scheduled for publication as a pamphlet when Dudley 27 00:03:42.260 --> 00:03:47.240 North died unexpectedly on December 31. 28 00:03:47.240 --> 00:03:56.160 His younger brother Roger, 1653-1734, who was helping Dudley edit the booklet, then revised 29 00:03:56.160 --> 00:04:03.600 the draft, added a preface, and published it anonymously in early 1692. 30 00:04:03.600 --> 00:04:09.960 Despite the booklet's brilliance and its systematic devotion to laissez-faire and hard-money views, 31 00:04:09.960 --> 00:04:15.760 the tract sank without a trace and was not at all influential in the development of 18th 32 00:04:15.760 --> 00:04:27.760 Roger North was not only the youngest of the brothers, he outlived them all by decades. 33 00:04:27.760 --> 00:04:34.760 Himself a Queen's Attorney General, he spent much of his life defending his brothers' reputations. 34 00:04:34.760 --> 00:04:41.760 He wrote voluminously in his lifetime on music, accounting, law, the English Constitution, 35 00:04:41.760 --> 00:04:45.760 and on numerous philosophic and scientific subjects. 36 00:04:45.760 --> 00:04:50.760 But natural reticence led him to keep all these writings unpublished. 37 00:04:50.760 --> 00:04:58.760 A decade after Roger's death, his biographies, or lives, of three of his eminent brothers were published 38 00:04:58.760 --> 00:05:04.760 in two volumes in 1742 and 1744. 39 00:05:04.760 --> 00:05:09.760 Even the publication of these two well-written volumes, however, 40 00:05:09.760 --> 00:05:22.760 made no dent in the history of economic thought until resurrected and praised by James Mill and by John Ramsey McCullough in the early 19th century. 41 00:05:22.760 --> 00:05:32.760 Roger North, who in his preface explained the groundwork and methodology of his brother and made his conclusions more consistent, 42 00:05:32.760 --> 00:05:37.760 pointed out the innovation in Dudley's method of economic analysis. 43 00:05:37.760 --> 00:05:54.760 For Dudley pioneered, at least in the history of English thought, the method which would later be adopted by Catillon and Say and Signore, and which Ludwig von Mises would, in the 20th century, call praxeology. 44 00:05:54.760 --> 00:06:02.040 Praxeology is economic theory resting on a few broad self-evident axioms grounded in 45 00:06:02.040 --> 00:06:09.800 apprehension of reality, then logically deducing the implications of these emphatically true 46 00:06:09.800 --> 00:06:19.620 axioms. But if A implies B, C, etc., and A is definitely true, the deductions can be 47 00:06:19.620 --> 00:06:23.200 be accepted as truths as well. 48 00:06:23.200 --> 00:06:30.160 Roger wrote of Dudley's method in his preface, I find trade here treated at another rate 49 00:06:30.160 --> 00:06:32.440 than usually has been. 50 00:06:32.440 --> 00:06:40.400 I mean philosophically, for he begins at the quick, from principles indisputably true. 51 00:06:40.400 --> 00:06:46.640 The older method of reasoning, Roger North added, dealt in abstracts more than truths, 52 00:06:46.640 --> 00:06:53.500 and forming hypotheses to fit abundance of precarious and insensible principles. 53 00:06:53.500 --> 00:06:59.840 In contrast, the new method, which North attributed to Descartes, builds knowledge upon clear 54 00:06:59.840 --> 00:07:03.100 and evident truths. 55 00:07:03.100 --> 00:07:09.000 In addressing trade and its problems, Dudley North began in his first discourse by setting 56 00:07:09.000 --> 00:07:14.720 forth the clear and simple general axiom or principle. 57 00:07:14.720 --> 00:07:19.840 Trade is nothing else but a commutation of superfluities. 58 00:07:19.840 --> 00:07:26.880 In other words, as Bourdain and the Scholastics had emphasized but the world had forgotten, 59 00:07:26.880 --> 00:07:34.160 men only commute or exchange goods or services because each benefits more from the good he 60 00:07:34.160 --> 00:07:41.560 receives than from the good he gives up in exchange, his superfluity. 61 00:07:41.560 --> 00:07:48.300 Trade therefore, whether intranational or international, benefits both parties. 62 00:07:48.300 --> 00:07:55.360 Trade is not a montane mercantilist form of warfare where one party or nation exploits 63 00:07:55.360 --> 00:08:00.120 or benefits at the expense of the other trader. 64 00:08:00.120 --> 00:08:06.000 Wealth and riches, then, are the goods that people are able to produce and accumulate, 65 00:08:06.000 --> 00:08:18.640 Dudley North concludes that he who is most diligent and raises most fruits or makes most 66 00:08:18.640 --> 00:08:25.500 of manufacturing will abound most in what others make or raise, and consequently be 67 00:08:25.500 --> 00:08:32.740 free from want and enjoy most conveniences, which is truly to be rich, although there 68 00:08:32.740 --> 00:08:38.000 There were no such thing as gold, silver or the like. 69 00:08:38.000 --> 00:08:41.680 There is no magic, then, to gold or silver. 70 00:08:41.680 --> 00:08:48.160 They are simply commodities selected by the market for their special qualities to be monies. 71 00:08:48.160 --> 00:08:54.920 As Dudley North says, gold and silver, in contrast to other market metals, are by nature 72 00:08:54.920 --> 00:09:01.020 are very fine, and more scarce than others, and imperishable, as well as convenient for 73 00:09:01.020 --> 00:09:03.860 easy storage. 74 00:09:03.860 --> 00:09:09.660 Proceeding from there, North rediscovers the scholastic analysis of money. 75 00:09:09.660 --> 00:09:15.980 If gold and silver are commodities, their value is determined, as are all other commodities 76 00:09:15.980 --> 00:09:20.280 on the market, by supply and demand. 77 00:09:20.280 --> 00:09:26.160 Having laid the groundwork in systematic and general analysis, Dudley North proceeds to 78 00:09:26.160 --> 00:09:29.920 the vexed question of the rate of interest. 79 00:09:29.920 --> 00:09:36.040 In the market, North points out, some people, in consequence of hard work and judgment, 80 00:09:36.040 --> 00:09:38.940 are able to accumulate property. 81 00:09:38.940 --> 00:09:44.360 If the property is accumulated in the form of land, the landowners will rent out some 82 00:09:44.360 --> 00:09:47.840 of the land to those who wish to cultivate it. 83 00:09:47.840 --> 00:09:53.840 Similarly, those who accumulate property in terms of money will rent out their money, 84 00:09:53.840 --> 00:09:55.840 charging a rate of interest. 85 00:09:55.840 --> 00:10:03.840 And just as the rental price of land on the market will be determined by the supply and demand of land, 86 00:10:03.840 --> 00:10:11.840 so the interest rate, the price of loans, will be determined by the supply and demand for credit. 87 00:10:11.840 --> 00:10:18.080 Since interest is a market price, government control will have consequences as injurious 88 00:10:18.080 --> 00:10:21.640 as the control of any price. 89 00:10:21.640 --> 00:10:26.320 Interest is low because the supply of capital is high. 90 00:10:26.320 --> 00:10:31.360 Low interest itself does not create abundance of capital. 91 00:10:31.360 --> 00:10:38.060 As Letwin paraphrases North, nothing can lower interest rates except an increased supply 92 00:10:38.060 --> 00:10:45.960 Supply of Capital, and as no law can by fiat increase the community's supply of capital, 93 00:10:45.960 --> 00:10:49.840 the proposed law is futile and injurious. 94 00:10:49.840 --> 00:10:57.180 Furthermore, North pointed out, usury laws will reduce the supply of savings and capital 95 00:10:57.180 --> 00:11:03.620 and thereby raise instead of lower the market rate of interest, and the quantity of trade 96 00:11:03.620 --> 00:11:05.140 will diminish. 97 00:11:05.140 --> 00:11:15.140 Moreover, intervention to reduce interest rates is unjust, because all prices should be treated alike and be equally free. 98 00:11:16.140 --> 00:11:32.140 In his discourse on coinage, North did not really deal with the re-coinage question, but he anticipated Smith, Ricardo and the classical economists in his keen and principled hard-money analysis. 99 00:11:32.140 --> 00:11:48.140 Everyone cries about a shortage of money, North noted, but what they really want is more goods, or in the case of merchants, what they really mean is that the prices for their goods are not satisfactory. 100 00:11:48.140 --> 00:12:01.140 Analyzing the components of the demand for money and its supply, North traced transactions and emergency demands, as well the different aspects of money supply. 101 00:12:01.140 --> 00:12:08.460 Unfortunately, he faltered when discussing how much money a nation really needed, failing 102 00:12:08.460 --> 00:12:13.560 to realize that any supply on the market is optimal. 103 00:12:13.560 --> 00:12:20.880 He believed that an increase in trade required an increase in the supply of money, not understanding 104 00:12:20.880 --> 00:12:28.020 that an increased demand for money could simply raise the market value of money, that is, 105 00:12:28.020 --> 00:12:34.020 The Theory of Money and Credit 106 00:12:58.020 --> 00:13:04.020 is regulated by the respective supplies and demands for coin and bullion. 107 00:13:04.020 --> 00:13:15.020 Thus if there is an increase in the stock of coin, the premium over bullion would fall, and coin would tend to be melted down into bullion. 108 00:13:15.020 --> 00:13:25.020 If on the other hand there is a shortage of coin, the coin premium would rise, and more people would mint bullion into coin. 109 00:13:25.020 --> 00:13:31.020 In this way, coin and bullion would tend to be kept in equilibrium. 110 00:13:31.020 --> 00:13:39.180 North likened the process to two buckets. Thus, the buckets work alternately. When money is scarce, 111 00:13:39.180 --> 00:13:43.820 bullion is coined. When bullion is scarce, money is melted. 112 00:13:45.500 --> 00:13:51.580 So, although Dudley North never reached the point of saying that the supply of money, 113 00:13:51.580 --> 00:13:59.820 compared to trade is always optimal. He arrived at a similar laissez-faire or market equilibrating 114 00:13:59.820 --> 00:14:07.260 conclusion by saying that no one has to worry about the supply of coin which will always be 115 00:14:07.260 --> 00:14:15.900 kept optimal on the market. As a result of his systematic praxeological analysis, Dudley North 116 00:14:15.900 --> 00:14:23.060 Roth arrived at firm, principled laissez-faire conclusions across the board. He opposed any 117 00:14:23.060 --> 00:14:29.220 usury laws. It will be found best for the nation to leave the borrower and the lender 118 00:14:29.220 --> 00:14:36.180 to make their own bargains. He opposed any sumptuary laws. He denounced laws trying to 119 00:14:36.180 --> 00:14:43.660 keep gold and silver inside a country as doomed to failure. Government laws and decrees could 120 00:14:43.660 --> 00:14:51.140 only diminish and never promote human energy, thrift and ingenuity. 121 00:14:51.140 --> 00:14:56.700 But it was Dudley's brother Roger who took the final step, not only in explaining his 122 00:14:56.700 --> 00:15:03.500 brother's methodology, but also in expounding consistent laissez-faire conclusions. 123 00:15:03.500 --> 00:15:08.500 Attacking government intervention across the board, Roger North declared, 124 00:15:08.500 --> 00:15:22.500 There can be no trade unprofitable to the public, for if it proves so, men leave off, and wherever the trades thrive, the public, of which they are part, thrives also. 125 00:15:22.500 --> 00:15:29.500 No law can set prices in trade, the rates of which must and will make themselves. 126 00:15:29.500 --> 00:15:37.500 But when such laws do happen to lay any hold, it is so much impediment to trade. 127 00:15:37.500 --> 00:15:43.500 All favor to one trade or interest against another is an abuse. 128 00:15:43.500 --> 00:15:57.500 Therefore, concluded Roger, laws to hamper trade, whether foreign or domestic, relating to money or other merchandises, are not the ingredients to make a people rich. 129 00:15:57.500 --> 00:16:01.500 What can government do for a prosperous economy? 130 00:16:01.500 --> 00:16:10.500 If peace be procured, easy justice maintained, the navigation not clogged, the industrious encouraged. 131 00:16:10.500 --> 00:16:21.500 In short, wrote North, it is peace, industry and freedom that brings trade and wealth, and nothing else. 132 00:16:21.500 --> 00:16:26.500 5. The Inflationists 133 00:16:26.500 --> 00:16:34.500 It is not surprising that mercantilists, with their concentration on greater revenues and power to the state, 134 00:16:34.500 --> 00:16:43.500 should fasten on inflationist schemes of creating bank paper and credit, as well as government paper money. 135 00:16:43.500 --> 00:16:50.500 Such proposals and schemes, however, had to wait for the discovery of printing in the 15th century, 136 00:16:50.500 --> 00:17:07.500 for the development of bank paper and fractional reserves in 16th century Italy and finally for the invention of government paper money and central banking, both dubious innovations of Britain in the 1690s. 137 00:17:07.500 --> 00:17:17.500 The first English inflationist was William Potter, whose most famous tract was The Key of Wealth, 1650. 138 00:17:17.500 --> 00:17:28.000 It was Potter whose theories and proposed schemes set the stage for more famous inflationist followers, such as the Scotsman John Law. 139 00:17:28.000 --> 00:17:38.500 Potter, who worked in the government land office, began with the generally agreed axiom that a greater amount of money is beneficial to society. 140 00:17:38.500 --> 00:17:45.460 But with impeccable logic, Potter asked, if more money is good, why shouldn't a perpetual 141 00:17:45.460 --> 00:17:49.660 and greater increase of money be even better? 142 00:17:49.660 --> 00:17:51.060 Why indeed? 143 00:17:51.060 --> 00:17:56.420 Why not an increasing supply of money leading to infinity? 144 00:17:56.420 --> 00:18:02.700 Potter offered a plethora of money-creating schemes, in which paper money would be secured 145 00:18:02.700 --> 00:18:10.660 not by specie, which is inconveniently scarce, but by the nation's land. More relevantly, 146 00:18:10.660 --> 00:18:18.740 of course, paper notes can actually be redeemed in physical gold or silver coin, whereas redemption 147 00:18:18.740 --> 00:18:25.680 of notes in land would prove a chimera. How are you supposed to carry around a few acres 148 00:18:25.680 --> 00:18:48.320 William Potter saw other wonders emerging from a land bank. 149 00:18:48.320 --> 00:18:54.500 Thus increasing the money supply would increase land values, and thereby increase the value 150 00:18:54.500 --> 00:18:59.980 of the Banking of the Money, a sort of magical perpetual motion machine. 151 00:18:59.980 --> 00:19:07.900 Actually, of course, the increased land values simply reflect the increasing prices and values 152 00:19:07.900 --> 00:19:12.460 caused by the manufacture of more money. 153 00:19:12.460 --> 00:19:18.160 Since Potter was anxious to inflate money and land values, he was almost frantically 154 00:19:18.160 --> 00:19:20.160 The Theory of Money and Credit 155 00:19:48.160 --> 00:20:03.440 William Potter was cagey about prices rising as a result of his proposed monetary inflation. 156 00:20:03.440 --> 00:20:09.280 He believed instead that the increased money supply would greatly expand the volume of 157 00:20:09.280 --> 00:20:15.600 trade, and therefore the amount of production of goods, and that wealth would therefore 158 00:20:15.600 --> 00:20:17.680 accumulate. 159 00:20:17.680 --> 00:20:23.400 Miller preferred to believe that all the increased money supply would be absorbed in increased 160 00:20:23.400 --> 00:20:27.880 production, so that prices would not rise at all. 161 00:20:27.880 --> 00:20:32.980 But even if prices rose, everyone would be better off. 162 00:20:32.980 --> 00:20:38.920 Rising prices, of course, is the Achilles heel of inflationist schemes, so that all 163 00:20:38.920 --> 00:20:46.080 of them deprecate the extent of subsequent price inflation and currency depreciation. 164 00:20:46.080 --> 00:20:53.320 They did not recognize, of course, that the volume of trade may increase in money terms, 165 00:20:53.320 --> 00:20:59.720 but that this gain, like the alleged rise in land values, would simply reflect the increase 166 00:20:59.720 --> 00:21:07.520 in all monetary terms and values as more money supply is created and spreads throughout the 167 00:21:07.520 --> 00:21:09.440 system. 168 00:21:09.440 --> 00:21:15.680 The argument of the alleged increase of trade and production largely rested on a flimsy 169 00:21:15.680 --> 00:21:19.180 and the analogy to the physical sciences. 170 00:21:19.180 --> 00:21:25.660 The Englishman William Harvey had only recently, in 1628, discovered the circulation of the 171 00:21:25.660 --> 00:21:28.620 blood within the human body. 172 00:21:28.620 --> 00:21:34.740 And Potter launched the very popular analogy between blood in the human body and money 173 00:21:34.740 --> 00:21:37.660 in the body economic. 174 00:21:37.660 --> 00:21:43.720 Just as people depend on the circulation of their blood, so the economy needs the circulation 175 00:21:43.720 --> 00:21:45.400 of money. 176 00:21:45.400 --> 00:21:51.200 But the inflationist notion of the more money the better can scarcely be supported by this 177 00:21:51.200 --> 00:21:53.240 feeble analogy. 178 00:21:53.240 --> 00:21:59.280 After all, who advocates the more blood the better in the human body, or the faster the 179 00:21:59.280 --> 00:22:02.480 circulation the better? 180 00:22:02.480 --> 00:22:08.720 In his bold moments, William Potter actually maintained that monetary inflation would cause 181 00:22:08.720 --> 00:22:11.760 prices to fall. 182 00:22:11.760 --> 00:22:19.080 would be vivified and production would increase so greatly that supply would rise and prices 183 00:22:19.080 --> 00:22:21.680 would fall. 184 00:22:21.680 --> 00:22:28.560 William Potter, however, proved to be only preparation for the locus classicus of inflationism, 185 00:22:28.560 --> 00:22:36.320 the prince of proto-Keynesian money-cranks, both theorist and activist, John Law of Lauriston 186 00:22:36.320 --> 00:22:44.920 1671 to 1729 Son of James Law, a wealthy Scottish goldsmith 187 00:22:44.920 --> 00:22:52.300 and banker, John was born and grew up in Edinburgh, proceeding to squander his father's substantial 188 00:22:52.300 --> 00:22:56.300 inheritance on gambling and fast living. 189 00:22:56.300 --> 00:23:03.420 Convicted of killing a love rival in a duel in London in 1694, Law bribed his way out 190 00:23:03.420 --> 00:23:09.820 Out of prison and escaped to the continent. After a decade in Europe pondering monetary 191 00:23:09.820 --> 00:23:18.260 problems, Law returned in 1703 to Scotland, where he was not subject to arrest. There, 192 00:23:18.260 --> 00:23:25.520 Law concentrated on developing and publishing his monetary theory cum scheme, which he presented 193 00:23:25.520 --> 00:23:32.620 to the Scottish Parliament in 1705, publishing the memorandum the same year in his famous 194 00:23:32.620 --> 00:24:01.620 The Scottish Parliament considered but turned down his scheme. The following year, the advent of the Union of Scotland with England forced law to flee to the continent once more, since he was still wanted by English law under the old murder charge. 195 00:24:01.620 --> 00:24:10.120 Carl Marx, in a sense, should have been proud of the way John Law unified theory and practice in his proposal. 196 00:24:10.120 --> 00:24:19.120 On the one hand, Law was the theorist arguing for a central land bank to issue inconvertible paper money, 197 00:24:19.120 --> 00:24:25.120 or rather paper money backed mystically by the land of the nation. 198 00:24:25.120 --> 00:24:31.120 As a crucial part of his proposal, the grateful nation, in this case Scotland, 199 00:24:31.120 --> 00:24:42.120 was supposed to appoint Law himself, the expert and theoretician, in charge of putting this inflationist central bank scheme into effect. 200 00:24:42.120 --> 00:24:51.120 John Law, as his subtitle states, proposed to supply the nation with a sufficiency of money. 201 00:24:51.120 --> 00:24:57.120 The increased money was supposed to vivify trade, increase employment and production. 202 00:24:57.120 --> 00:25:03.120 The employment motif providing a nice proto-Keynesian touch. 203 00:25:03.120 --> 00:25:11.120 Law stressed, in opposition to the scholastic hard-money tradition, that money is a mere government creation, 204 00:25:11.120 --> 00:25:23.120 that it has no intrinsic value as a metal. Its only function is to be a medium of exchange, and not any store of value for the future. 205 00:25:23.120 --> 00:25:37.120 Even more than William Potter, John Law assured the nation that the increased money supply and bank credit would not raise prices, especially under Law's own wise aegis. 206 00:25:37.120 --> 00:25:55.120 On the contrary, Law anticipated Irving Fisher and the monetarists by assuring that his paper money inflation would lead to stability of value, presumably stability of the price of labor or the purchasing power of money. 207 00:25:55.120 --> 00:26:06.120 Law also anticipated Adam Smith in the latter part of the 18th century in his fallacious justification for fractional reserve banking, 208 00:26:06.120 --> 00:26:12.640 that it would provide a costless highway in the air, furnishing a money supply without 209 00:26:12.640 --> 00:26:20.480 spending resources on the mining of gold or silver. In the same way, of course, any expenditure 210 00:26:20.480 --> 00:26:27.200 of resource can be considered a waste if we supply our own assumptions that are not held 211 00:26:27.200 --> 00:26:34.280 by people on the free market. Thus, as Professor Walter Block has pointed out, if there were 212 00:26:34.280 --> 00:26:49.280 If there were no crime, all expenditure on locks, fences, guards, alarm systems, etc. could be denounced as wasted resources by external observers criticizing these expenditures. 213 00:26:49.280 --> 00:27:01.280 Similarly, if there were no such thing as governmental inflation, market expenditure on gold or silver could be considered wasteful by observers. 214 00:27:01.280 --> 00:27:08.260 If domestic price rises constitute the Achilles heel of monetary inflation, another worry 215 00:27:08.260 --> 00:27:15.540 has been the outflow of gold and silver from the country, in short, an unfavorable balance 216 00:27:15.540 --> 00:27:19.000 of trade, or of payment. 217 00:27:19.000 --> 00:27:22.720 But John Law dismissed this problem too. 218 00:27:22.720 --> 00:27:28.680 On the contrary, he declared that an increase in the money supply would expand employment 219 00:27:28.680 --> 00:27:36.600 and Output and therefore increase exports, thus causing a favorable balance of payment, 220 00:27:36.600 --> 00:27:44.760 with gold and silver flowing into the country. Note that there is no analysis of why an increase 221 00:27:44.760 --> 00:27:51.680 in the money supply should increase output or employment, let alone drag exports along 222 00:27:51.680 --> 00:27:57.200 along with it in this seemingly universal expansion. 223 00:27:57.200 --> 00:28:02.800 Interestingly enough, one of law's talking points about the need for more money was, 224 00:28:02.800 --> 00:28:08.320 as in the case of low interest, based on a striking misinterpretation of the reasons 225 00:28:08.320 --> 00:28:15.600 for the prosperity of the Dutch, whom all other nations envied in the seventeenth century. 226 00:28:15.600 --> 00:28:21.640 We have seen that everyone saw that the Dutch had low interest rates, leading English mercantile 227 00:28:21.640 --> 00:28:28.520 Mercantilists to put the cart before the horse and attribute Dutch prosperity to low interest rates 228 00:28:29.040 --> 00:28:36.560 Instead of realizing that high savings and higher standards of living had brought about these low interest rates 229 00:28:37.360 --> 00:28:44.040 Hence the mercantilists suggested that England force the maximum usury rate still lower 230 00:28:44.040 --> 00:28:53.600 Similarly, John Law saw that prosperous Holland enjoyed a plenty of metallic money. He attributed 231 00:28:53.600 --> 00:29:01.140 the prosperity to the abundance of money and proposed to supply paper money instead. Again, 232 00:29:01.140 --> 00:29:07.600 he overlooked the point that it was Dutch property and high production and export that 233 00:29:07.600 --> 00:29:11.600 that brought a plenitude of coin into the country. 234 00:29:11.600 --> 00:29:20.240 The export surplus and abundant coin was a reflection of Dutch prosperity, not its cause. 235 00:29:20.240 --> 00:29:26.560 Not that John Law neglected the low interest argument for Dutch prosperity, but instead 236 00:29:26.560 --> 00:29:33.240 of direct usury laws, Law proposed to arrive at low interest rates in what would become 237 00:29:33.240 --> 00:29:40.600 from the Standard Inflationist Manner, expanding bank credit and bank money and thereby pushing 238 00:29:40.600 --> 00:29:42.800 down the rate of interest. 239 00:29:42.800 --> 00:29:50.040 Indeed, law worked out a proto-Keynesian mechanism, increasing the quantity of money would lower 240 00:29:50.040 --> 00:29:57.280 interest rates, thereby expanding investment and capital accumulation and assuring general 241 00:29:57.280 --> 00:29:59.640 prosperity. 242 00:29:59.640 --> 00:30:06.240 To law, as to Potter before him and Keynes after him, the main enemy of his scheme was 243 00:30:06.240 --> 00:30:12.680 the menace of hoarding, a practice which would defeat the purpose of greater spending. 244 00:30:12.680 --> 00:30:19.160 Instead, lower spending would diminish trade and create unemployment. 245 00:30:19.160 --> 00:30:25.840 As in the case of the late 19th century German money-crank Silvio Gassel, law proposed a 246 00:30:25.840 --> 00:30:52.840 It took John Law another decade to find a ruler of a country gullible enough to fall for his scheme. Law found his mark in the regent of France, a country that had been thrown into confusion and turmoil upon the death of its seemingly eternal ruler, Louis XIV, in 1715. 247 00:30:52.840 --> 00:31:00.840 The regent, the duke of Orléans, set law up as head of the Banque Generale in 1716, 248 00:31:00.840 --> 00:31:06.840 a central bank with a grant of the monopoly of the issue of banknotes in France. 249 00:31:06.840 --> 00:31:10.840 Soon, the Banque became the Banque Royale. 250 00:31:10.840 --> 00:31:18.840 Originally, banknotes were receivable in French taxes and were redeemable in silver. 251 00:31:18.840 --> 00:31:23.280 Soon, however, silver redeemability was ended. 252 00:31:23.280 --> 00:31:31.840 Quickly, by 1717, John Law had all monetary and financial power in the realm placed into 253 00:31:31.840 --> 00:31:33.720 his hands. 254 00:31:33.720 --> 00:31:38.960 To his old scheme, he added the financing of the massive government debt. 255 00:31:38.960 --> 00:31:44.760 He was made the head of the new Mississippi Company, as well as Director General of French 256 00:31:44.760 --> 00:31:46.140 Finances. 257 00:31:46.140 --> 00:31:52.600 The notes of the Mississippi Company were allegedly backed by the vast, undeveloped land which 258 00:31:52.600 --> 00:31:58.140 the French government owned in the Louisiana Territory in North America. 259 00:31:58.140 --> 00:32:04.220 Laws Bank created the notorious hyperinflationary Mississippi bubble. 260 00:32:04.220 --> 00:32:14.200 Notes, bank credit, prices and monetary values skyrocketed from 1717 to 1720. 261 00:32:14.200 --> 00:32:20.460 One aristocratic observer in Paris noted that for the first time the word millionaire had 262 00:32:20.460 --> 00:32:26.060 become prevalent, as suddenly many people seemed to possess millions. 263 00:32:26.060 --> 00:32:30.640 Finally, in 1720, the bubble collapsed. 264 00:32:30.640 --> 00:32:37.340 Law ended a pauper, heavily in debt, and he was forced once again to flee the country. 265 00:32:37.340 --> 00:32:43.600 As before, he roamed Europe, making a precarious living as a gambler and trying to find another 266 00:32:43.600 --> 00:33:08.600 The Cataclysm of John Law's experiment and his Mississippi Bubble provided a warning lesson to all reflective writers and theorists on money throughout the 18th century. 267 00:33:08.600 --> 00:33:22.600 As we shall see, hard money doctrines prevailed easily throughout the century, from Law's former partner and outwitter, Richard Catillon, down to the founding fathers of the American Republic. 268 00:33:22.600 --> 00:33:32.600 But there were some who refused to learn any lessons from the Law failure, and whose outlook was heavily influenced by John Law. 269 00:33:32.600 --> 00:33:47.600 Perhaps the most prominent of the post-law inflationists in the 18th century was the eminent Anglo-Irish idealist philosopher Bishop George Barclay, 1685-1753. 270 00:33:47.600 --> 00:34:01.600 Barclay studied at Trinity College Dublin, the intellectual centre of the Anglo-Irish establishment, and his great philosophical works were all written in his twenties, while he was a fellow at Trinity. 271 00:34:01.600 --> 00:34:09.240 Berkley then spent several years in the late 1720s vainly trying to establish a Christian 272 00:34:09.240 --> 00:34:16.760 college in Newport, Rhode Island. After that, Berkley was appointed Dean of Derry and then 273 00:34:16.760 --> 00:34:19.920 Bishop of Cloyne. 274 00:34:19.920 --> 00:34:25.120 Berkley's major pronouncements on economic questions came in his pamphlet, The Queerist 275 00:34:25.120 --> 00:34:35.520 1735 to 1737, published in three installments. The Queerest was highly influential, ten editions 276 00:34:35.520 --> 00:34:41.880 being published in Barclay's lifetime. It was written solely as a series of nine hundred 277 00:34:41.880 --> 00:34:48.920 loaded questions by which Barclay hoped to influence public opinion through sheer rhetoric 278 00:34:48.920 --> 00:34:52.900 without having to engage in reasoning. 279 00:34:52.900 --> 00:34:57.480 Barclay's monetary views were heavily influenced by John Law. 280 00:34:57.480 --> 00:35:03.520 A typical example of one of Barclay's loaded queries is whether the public is not more 281 00:35:03.520 --> 00:35:09.960 benefited by a shilling that circulates than a pound that lies dead. 282 00:35:09.960 --> 00:35:16.160 Money for Barclay was a mere ticket, and the centerpiece of the querist was the advocation 283 00:35:16.160 --> 00:35:23.120 of a law-type central bank that would expand money and credit, lower interest rates, as 284 00:35:23.120 --> 00:35:31.080 Barclay put it, put an end to usury, and expand employment and prosperity. 285 00:35:31.080 --> 00:35:36.160 Barclay was shrewd enough to recognize that he had to answer objections based on John 286 00:35:36.160 --> 00:35:42.840 Law's egregious flop, and so he hastened to put some distance between his own schemes 287 00:35:42.840 --> 00:35:45.920 and the madness of France. 288 00:35:45.920 --> 00:35:52.360 Like law before him, Barclay promised that his proposed banknotes would only be injected 289 00:35:52.360 --> 00:36:00.520 into the economy by slow degrees, and that he or his surrogates would take pains to keep 290 00:36:00.520 --> 00:36:08.080 the expansion of bank credit proportional to the multiplication of trade and business. 291 00:36:08.080 --> 00:36:12.560 In that way, prices would supposedly not rise. 292 00:36:12.560 --> 00:36:18.920 But of course, Barclay embodied the usual inflationist failure to see that the multiplication 293 00:36:18.920 --> 00:36:27.000 of trade and business in money terms would precisely be the result of the monetary inflation 294 00:36:27.000 --> 00:36:33.280 and the consequent inflation of all prices and monetary values. 295 00:36:33.280 --> 00:36:39.240 Barclay's manipulative query on this theme is, whether therefore bank bills should at 296 00:36:39.240 --> 00:36:53.480 6. The Hard Money Response 297 00:36:53.480 --> 00:36:59.840 The bulk of the 18th century response to the doctrines and failures of John Law, however, 298 00:36:59.840 --> 00:37:07.000 was understandably to return to and redouble devotion to the original continental tradition 299 00:37:07.000 --> 00:37:13.400 of Hard Money, a tradition now challenged by the new institutions of central banking 300 00:37:13.400 --> 00:37:16.940 and fractional reserve banking. 301 00:37:16.940 --> 00:37:23.760 One of the earliest and most brilliant responses, which cannot be limited to the term hard money, 302 00:37:23.760 --> 00:37:30.440 was that of law's former partner and skeptic in the Mississippi bubble, Richard Cantillon, 303 00:37:30.440 --> 00:37:38.520 who virtually founded modern economics in his remarkable essay, written about 1730. 304 00:37:38.520 --> 00:37:45.480 The most immediate hard-money reaction to law in England was also one of the most remarkable. 305 00:37:45.480 --> 00:37:53.480 Isaac Gervais, died 1739, was born in Paris of a French Protestant father who owned a 306 00:37:53.480 --> 00:37:57.640 firm manufacturing and trading in silk. 307 00:37:57.640 --> 00:38:04.560 Gervais Sr. moved to London, where his son Isaac was employed in the family firm. 308 00:38:04.560 --> 00:38:12.320 In 1720, Gervais published a brief but extraordinary pamphlet of less than 30 pages, The System 309 00:38:12.320 --> 00:38:16.100 or Theory of the Trade of the World. 310 00:38:16.100 --> 00:38:22.320 In the course of attacking law's doctrine of bank credit and monetary expansion, Gervais 311 00:38:22.320 --> 00:38:30.440 arrived before Catillon and Hume at the process towards international monetary equilibrium, 312 00:38:30.440 --> 00:38:34.760 or the specie flow price mechanism. 313 00:38:34.760 --> 00:38:40.520 Without artificial bank credit expansion, Gervais pointed out, the supply of money in 314 00:38:40.520 --> 00:38:47.520 each country would tend to be proportionate to its production or volume of trade. 315 00:38:47.520 --> 00:38:53.280 Each nation's consumption and production, and its imports and exports, would tend to 316 00:38:53.280 --> 00:38:55.400 be in balance. 317 00:38:55.400 --> 00:39:01.940 If this equilibrium should be disturbed, and, for example, excessive gold or silver flow 318 00:39:01.940 --> 00:39:08.500 into a particular country, then this excess would be spent on imports, the balance of 319 00:39:08.500 --> 00:39:15.600 trade would tilt, and imports exceed exports, and this excess would have to be paid for 320 00:39:15.600 --> 00:39:22.680 by an Outflow of Species. This outflow, in turn, would reduce the excess of money and 321 00:39:22.680 --> 00:39:27.480 return the country to a monetary and foreign trade balance. 322 00:39:27.480 --> 00:39:36.360 But, Gervais charged, schemes such as John Laws upset this balance. Bank credit, serving 323 00:39:36.360 --> 00:39:44.680 as substitute money, artificially and unnaturally increases the money supply, expanding consumption, 324 00:39:44.680 --> 00:39:51.600 including imports, raising domestic prices and lowering exports, so that the increased 325 00:39:51.600 --> 00:39:55.960 bank credit will cause an outflow of specie. 326 00:39:55.960 --> 00:40:00.240 The artificial credit can bring no lasting gain. 327 00:40:00.240 --> 00:40:06.960 There is also a strong hint in Gervais that the credit expansion will only manage to divert 328 00:40:06.960 --> 00:40:14.040 investment and production from those natural fields serving consumers efficiently into 329 00:40:14.040 --> 00:40:19.400 to those areas that will prove to be wasteful and uneconomic. 330 00:40:19.400 --> 00:40:26.080 Gervais's analysis of the effects of monetary expansion was also significant in being more 331 00:40:26.080 --> 00:40:33.480 akin to Catillon, by stressing the expansion of money inducing people to spend more, than 332 00:40:33.480 --> 00:40:40.920 to Hume, who confined his analysis to the increased money supply causing rising prices, 333 00:40:40.920 --> 00:40:47.620 Neglecting the Outflow of Species Caused by Greater Monetary Spending on Imports as well 334 00:40:47.620 --> 00:40:50.560 as on Domestic Products. 335 00:40:50.560 --> 00:40:59.120 From his analysis of natural law, trade, self-equilibration on the market and their disruptions by government, 336 00:40:59.120 --> 00:41:07.380 Isaac Gervais proceeded to a strong recommendation of all-out free trade, free of any distortions 337 00:41:07.380 --> 00:41:10.520 or restrictions by government. 338 00:41:10.520 --> 00:41:17.040 Gervais's uncompromising free-trade conclusion was all the more remarkable because his own 339 00:41:17.040 --> 00:41:23.140 firm enjoyed monopoly privileges conferred on it by the English Parliament. 340 00:41:23.140 --> 00:41:29.900 But Gervais courageously concluded that trade is never in a better condition than when it's 341 00:41:29.900 --> 00:41:38.180 natural and free, and forcing it, either by laws or taxes being always dangerous, because, 342 00:41:38.180 --> 00:41:43.820 Although the intended benefit or advantage be perceived, it is difficult to perceive 343 00:41:43.820 --> 00:41:50.740 its contrecoup, whichever is at least in full proportion to the benefit. 344 00:41:50.740 --> 00:41:57.560 Here Gervais anticipated the keen insights of the 19th century French laissez-faire economist 345 00:41:57.560 --> 00:42:03.560 Frederic Bastiat, who stressed that government intervention stemmed from the fact that the 346 00:42:03.560 --> 00:42:10.340 The benefits of subsidies or privileges are often direct and immediate, whereas the greater 347 00:42:10.340 --> 00:42:15.520 unfortunate consequences are more remote and indirect. 348 00:42:15.520 --> 00:42:22.640 The former are seen, whereas the latter are unseen, and therefore the seeming benefits 349 00:42:22.640 --> 00:42:24.960 get all the attention. 350 00:42:24.960 --> 00:42:31.640 Gervaise concluded with a plea for freedom and natural law that would anticipate Turgot 351 00:42:31.640 --> 00:42:36.320 and other French laissez-faire thinkers of his century. 352 00:42:36.320 --> 00:42:43.600 Man naturally seeks and finds the most easy and natural means of attaining his ends, and 353 00:42:43.600 --> 00:42:50.040 cannot be diverted from those means but by force and against his will. 354 00:42:50.040 --> 00:42:56.400 Isaac Gervais wrote no more on economic questions, but he did become a distinguished Anglican 355 00:42:56.400 --> 00:43:01.680 and Clergymen, which makes it all the more puzzling that his exceptional and innovating 356 00:43:01.680 --> 00:43:08.600 pamphlet exerted no influence whatever on English opinion. It was lost to the world 357 00:43:08.600 --> 00:43:13.960 until resurrected by historians in the 20th century. 358 00:43:13.960 --> 00:43:19.600 Another hard-money advocate who developed a theory of international monetary equilibrium 359 00:43:19.600 --> 00:43:28.040 was a timber merchant of Dutch extraction, Jacob van der Lint, died 1740, in his tract, 360 00:43:28.040 --> 00:43:32.720 Money Answers All Things, 1734. 361 00:43:32.720 --> 00:43:38.880 Despite the title, van der Lint's theme was that money is distributed properly and optimally 362 00:43:38.880 --> 00:43:41.300 on the free market. 363 00:43:41.300 --> 00:43:47.240 There is a tendency on the market for all nations' prices to be equal, and if one country 364 00:43:47.240 --> 00:43:57.240 If a country should acquire more money, its higher price level would soon draw the money out of the country until prices are back in equilibrium. 365 00:43:57.240 --> 00:44:04.240 It doesn't matter, then, how much specie a nation may have, since prices would adjust. 366 00:44:04.240 --> 00:44:16.240 Thus, if a nation had little specie, its prices would be low, and it would out-compete other nations, with gold and silver consequently flowing into the country. 367 00:44:16.240 --> 00:44:35.240 Indeed, so concerned was van der Lint to keep prices low and competitive with other nations that he unknowingly replicated Cantillon's advice for rulers or other worthies to hoard their gold and silver so as to keep national prices low. 368 00:44:35.240 --> 00:44:43.240 Van der Lint consistently carried over his hard money analysis to the problem of expanding bank credit. 369 00:44:43.240 --> 00:45:05.240 Bank credit, Vanderlint pointed out, expands the money supply, and so, as the price of things will hence be raised, it must and will make us the market to receive the commodities of every country whose price of things are cheaper than ours, and hence turn the balance of trade against us. 370 00:45:05.240 --> 00:45:21.240 Vanderlindt, like Gervais, was thus a severe critic of inflation and fractional reserve banking, as well as an analyst of the international harmonies of money, prices and the balance of trade on the free market. 371 00:45:21.240 --> 00:45:38.240 Like Gervais, Vanderlint was also an advocate of unrestricted free trade, concluding, in general, there should never be any restraints of any kind on trade, nor any greater taxes than are unavoidable. 372 00:45:38.240 --> 00:45:46.240 Attempts to fix the price of gold and silver, or to prohibit the export of coin, are also futile. 373 00:45:46.240 --> 00:45:52.200 It is no less absurd for the government to fix the price they will give for gold and 374 00:45:52.200 --> 00:45:57.640 silver brought to be coined than it would be to make a law to fix and ascertain the 375 00:45:57.640 --> 00:46:01.080 prices of every other commodity. 376 00:46:01.080 --> 00:46:07.520 Vanderlindt also deplored the rise during the 18th century of the war-making state and 377 00:46:07.520 --> 00:46:12.560 of the high taxes and public debts which war brings in its wake. 378 00:46:12.560 --> 00:46:23.560 Indeed, for van der Lint, free trade and free markets and international peace go hand in hand, while war is the enemy of freedom. 379 00:46:23.560 --> 00:46:33.560 War, warned van der Lint, is one of the greatest calamities to which mankind can be subjected, the end of which none can well foresee, 380 00:46:33.560 --> 00:46:41.560 and the burdens of which, that is, public debts and taxes, are seldom discharged in one generation. 381 00:46:41.560 --> 00:46:57.560 Eloquently, van der Lint concluded that it's monstrous to imagine the author of this world hath constituted things so as to make it any ways necessary for mankind to murder and destroy each other. 382 00:46:57.560 --> 00:47:16.560 The culminating hard-money theorist in 18th century England was Joseph Harris, 1702 to 1764, who published a massive two-volume Essays upon Money and Coins, 1757 and 1758. 383 00:47:16.560 --> 00:47:26.560 Harris began life as a country blacksmith, but then went to London, where he became a prominent writer on navigation, mathematics and astronomy. 384 00:47:26.560 --> 00:47:35.200 Economy. He was an employee at the Mint and was made assay master of the Mint in 1748. 385 00:47:35.200 --> 00:47:41.360 Harris was a hard money critic of debasement or fractional reserve banking and bank credit 386 00:47:41.360 --> 00:47:48.400 expansion. He was an explicit follower of Cantillon's analysis of money flows. Thus 387 00:47:48.400 --> 00:47:56.060 he saw, with Cantillon, that international monetary matters tended towards an equilibrium. 388 00:47:56.060 --> 00:48:03.320 But he also saw, with Cantillon, that inflows or increases of the money supply did not simply 389 00:48:03.320 --> 00:48:10.560 raise prices, they also necessarily affected the distribution of money, benefiting some 390 00:48:10.560 --> 00:48:13.040 people at the expense of others. 391 00:48:13.040 --> 00:48:20.440 Hence, the flows of money, though self-adjusting, would cause economic harm, especially during 392 00:48:20.440 --> 00:48:23.180 the adjustment process. 393 00:48:23.180 --> 00:48:30.940 As Hutchison sums up Harris's view, inflows of money enrich some at the expense of others, 394 00:48:30.940 --> 00:48:36.060 and such processes may for a time cause distress. 395 00:48:36.060 --> 00:48:42.140 Sudden fluctuations of money, therefore, whether flowing in or out, would be pernicious while 396 00:48:42.140 --> 00:48:46.620 it lasted, and for some time afterwards. 397 00:48:46.620 --> 00:48:53.460 As a result of his analysis, Harris was determinedly opposed to any alteration whatever of the 398 00:48:53.460 --> 00:48:57.740 monometallic monetary standard of a country. 399 00:48:57.740 --> 00:49:02.620 Harris favored silver over gold as being more stable. 400 00:49:02.620 --> 00:49:08.720 As Harris emphatically warned, the established standard of money should not be violated or 401 00:49:08.720 --> 00:49:13.620 altered under any pretense whatsoever. 402 00:49:13.620 --> 00:49:22.420 7. Laissez-faire by Mid-Century, Tucker and Townsend 403 00:49:22.420 --> 00:49:27.160 If a hard-money stance had been pretty well established in English thought by the middle 404 00:49:27.160 --> 00:49:34.260 of the 18th century, so too had a corresponding, if not fully consistent, commitment to free 405 00:49:34.260 --> 00:49:41.940 markets and freedom of international trade. The Vanderlint-Cantillon-Harris Analysis of 406 00:49:41.940 --> 00:49:47.820 of International Trade and Money Flows lent powerful arguments in the direction of freedom 407 00:49:47.820 --> 00:49:55.220 of trade, and as we shall see in later chapters, the Scottish views of Carmichael, Hutchison 408 00:49:55.220 --> 00:50:01.740 and Hume were leading in the same direction in the northern part of Great Britain. 409 00:50:01.740 --> 00:50:12.180 Josiah Tucker, 1713-1799, Anglican clergyman and Dean of Gloucester from 1758 on, was a 410 00:50:12.180 --> 00:50:18.860 celebrated 18th century writer on religion, politics and economics, who was extravagantly 411 00:50:18.860 --> 00:50:25.260 hailed in his day as a free trader by such men as the great laissez-faire statesman and 412 00:50:25.260 --> 00:50:33.100 economist A.R.J. Turgot, who translated two of Tucker's works into French. 413 00:50:33.100 --> 00:50:39.160 But Tucker's devotion to freedom of trade was only moderate and marred by inconsistencies 414 00:50:39.160 --> 00:50:41.500 and contradictions. 415 00:50:41.500 --> 00:50:49.540 Thus Tucker favored absolute prohibition on the export of raw materials, tariffs on manufacturers, 416 00:50:49.540 --> 00:51:07.540 protective tariffs for infant industries, government compulsion under severe penalties of landlords to set aside 20 out of every 400 acres for timber, and heavy taxes on consumption of sports, recreation, and luxuries. 417 00:51:07.540 --> 00:51:24.540 In general, even though he anticipated Adam Smith in praising the consequences of self-interest and self-love, he also believed in the importance of government directing and guiding the activities based on self-interest. 418 00:51:24.540 --> 00:51:32.540 He was also a characteristic mercantilist in urging the government to encourage ever-greater population. 419 00:51:32.540 --> 00:51:39.900 It is true, however, that Tucker attacked the restrictionism of the Navigation Acts and the usury laws, 420 00:51:39.900 --> 00:51:49.100 both areas in which he was closer to a free-trade position than that of the chronically over-praised Adam Smith. 421 00:51:49.100 --> 00:51:55.700 On one free-market point, moreover, Tucker was consistent and determined. 422 00:51:55.700 --> 00:51:59.100 Opposition to War and Conquest 423 00:51:59.100 --> 00:52:04.620 In a letter to Lord Cames during the Seven Years' War with France, Tucker wrote, 424 00:52:05.420 --> 00:52:12.620 War, conquests and colonies are our present system, and mine is just the opposite. 425 00:52:13.740 --> 00:52:20.060 Interestingly enough, however, Tucker was not at all moved by sympathy for the American cause. 426 00:52:20.700 --> 00:52:26.140 On the contrary, he believed that Britain had the full right to tax the colonies. 427 00:52:26.140 --> 00:52:32.140 But Tucker's opposition to war triumphed, including a war to keep the colonies. 428 00:52:32.140 --> 00:52:40.140 To Tucker, America ever was a millstone hanging about the neck of this country to weigh it down, 429 00:52:40.140 --> 00:52:46.140 and as we ourselves had not the wisdom to cut the rope and to let the burden off, 430 00:52:46.140 --> 00:52:50.140 the Americans have kindly done it for us. 431 00:52:50.140 --> 00:53:06.140 Actually, Josiah Tucker's main historical contribution was to highlight the views of a far sounder laissez-faire economist who has been shamefully neglected by virtually all historians of economic thought. 432 00:53:06.140 --> 00:53:27.140 Charles III Viscount Townsend, 1700-1764, has been virtually unknown, and often confused with his son of the same name who was infamously responsible for the fateful Townsend taxes on tea and other imports into the American colonies. 433 00:53:27.140 --> 00:53:33.140 Our Lord Townsend was a scion of one of the great agricultural estates in England, 434 00:53:33.140 --> 00:53:39.280 Lord Townsend, son of the well-known diplomat and scientific farmer Turnip Townsend, and 435 00:53:39.280 --> 00:53:43.700 husband of the glamorous socialite Audrey. 436 00:53:43.700 --> 00:53:49.500 Lord Townsend's first published pamphlet cut against his own personal economic interest 437 00:53:49.500 --> 00:53:55.660 by denouncing the policy of large subsidies on the export of corn. 438 00:53:55.660 --> 00:54:04.060 The pamphlet, National Thoughts, 1751, was signed by a landowner to emphasize this point 439 00:54:04.060 --> 00:54:08.140 of arguing against his own subsidy. 440 00:54:08.140 --> 00:54:13.980 Dean Tucker struck up a correspondence with Townsend in defense of the export bounty on 441 00:54:13.980 --> 00:54:18.500 corn, but soon Tucker was converted on the issue. 442 00:54:18.500 --> 00:54:24.380 Thus, Townsend pointed out the folly of the British government subsidizing foreigners 443 00:54:24.380 --> 00:54:30.700 by allowing them to buy cheaper corn than the British themselves had to pay. 444 00:54:30.700 --> 00:54:37.060 Tucker was especially admiring of Townsend's uniqueness in arguing particular cases from 445 00:54:37.060 --> 00:54:43.460 general principles instead of the other way around, and specifically the general interest 446 00:54:43.460 --> 00:54:50.100 in favoring free competition as against grants of monopoly by government. 447 00:54:50.100 --> 00:54:56.620 Thus Tucker writes to Townsend that I am mightily pleased with your lordship's manner of accounting 448 00:54:56.620 --> 00:55:03.960 for people's frequent and gross mistakes in the affairs of commerce, by arguing from particulars 449 00:55:03.960 --> 00:55:11.940 to generals, whereas in this case a man should form to himself a general plan drawn from 450 00:55:11.940 --> 00:55:18.500 the properties of commerce, and then descend to particulars and individuals and observe 451 00:55:18.500 --> 00:55:41.500 Tucker declared himself convinced that bounties cannot be of any national service to a manufacturer which is past its infancy. 452 00:55:41.500 --> 00:55:57.500 A bit later in this correspondence, Lord Townsend demonstrated his adherence to free market principles by criticizing the inconsistencies of Sir Matthew Decker, a director of the East India Company. 453 00:55:57.500 --> 00:56:06.780 Decker, 1679-1749, a Dutch immigrant, had also attacked the corn bounty, but Townsend 454 00:56:06.780 --> 00:56:13.920 was sharply critical because, notwithstanding this sound doctrine, he, Decker, proposes 455 00:56:13.920 --> 00:56:21.620 to form monopoly companies and to erect governmental magazines of corn in every county, a most 456 00:56:21.620 --> 00:56:25.900 surprising absurdity and inconsistency. 457 00:56:25.900 --> 00:56:31.900 Of course the inconsistency is not so surprising if we realize that Decker was a director of 458 00:56:31.900 --> 00:56:35.940 the greatest monopoly company of them all. 459 00:56:35.940 --> 00:56:42.340 Townsend then goes on to point out that if as he advocates, trade and industry and all 460 00:56:42.340 --> 00:56:49.100 our ports were thrown open, and all duties, prohibitions, bounties and monopolies of every 461 00:56:49.100 --> 00:56:51.100 The Theory of Money and Credit 462 00:57:19.100 --> 00:57:25.740 Lord Townsend was worried about the poor and paternalistically advocated removing the enforceability 463 00:57:25.740 --> 00:57:31.580 in court of small amounts of debt in order to help their condition. 464 00:57:31.580 --> 00:57:38.160 In later letters, however, Townsend introduced a bill in Parliament which would instead increase 465 00:57:38.160 --> 00:57:45.940 the mobility of the laboring poor by removing certain disabilities and restraints upon them. 466 00:57:45.940 --> 00:57:52.400 Professor Rashid speculates that the change in stance came about because, having accepted 467 00:57:52.400 --> 00:57:58.060 the validity of laissez-faire, Townsend came to believe that the poor could not be helped 468 00:57:58.060 --> 00:58:03.460 more than by making them free to help themselves. 469 00:58:03.460 --> 00:58:11.140 So eager was Lord Townsend to spread the principles of free markets and free trade that in 1756 470 00:58:11.140 --> 00:58:17.220 We sponsored prizes at Cambridge for essays on economic topics. 471 00:58:17.220 --> 00:58:23.160 Essay contests after the first year were discontinued because Townsend and the University could 472 00:58:23.160 --> 00:58:25.780 not agree on essay questions. 473 00:58:25.780 --> 00:58:33.420 Thus Cambridge turned down Townsend's suggested topic, What Influence Has Trade on the Morals 474 00:58:33.420 --> 00:58:34.940 of a Nation? 475 00:58:34.940 --> 00:58:42.060 Lord Townsend was indignant at Cambridge University's implicit denial of any connection between trade 476 00:58:42.060 --> 00:58:49.740 and morality, and he replied indignantly and with keen perception, There is not any moral 477 00:58:49.740 --> 00:58:53.900 duty which is not of a commercial nature. 478 00:58:53.900 --> 00:58:59.460 Freedom of trade is nothing more than a freedom to be moral agents. 479 00:58:59.460 --> 00:59:05.460 This latter sentence expresses the crucial libertarian insight of the unity between free 480 00:59:05.460 --> 00:59:12.860 moral agency and freedom to act, produce and exchange property. 481 00:59:12.860 --> 00:59:18.700 Other questions suggested by Lord Townsend also put the libertarian rhetorical case very 482 00:59:18.700 --> 00:59:20.540 well. 483 00:59:20.540 --> 00:59:26.380 Has a free trade or a free government the greater effect in promoting the wealth and 484 00:59:26.380 --> 00:59:29.240 strength of a nation? 485 00:59:29.240 --> 00:59:36.020 Can any restraints be laid on trade or industry without lessening the advantages of them? 486 00:59:36.020 --> 00:59:39.500 And if there can, what are they? 487 00:59:39.500 --> 00:59:44.360 Is there any method of raising taxes without prejudice to trade? 488 00:59:44.360 --> 00:59:47.960 And if there is, what is it? 489 00:59:47.960 --> 00:59:54.260 Despite his neglect by historians, Lord Townsend's views seem to have had substantial influence 490 00:59:54.260 --> 00:59:56.120 in his day. 491 00:59:56.120 --> 01:00:02.640 The prominent monthly review guessed the identity of the landowner author of National Thoughts 492 01:00:02.640 --> 01:00:09.080 immediately upon publication, and the pamphlet was quoted in another tract on the corn bounty 493 01:00:09.080 --> 01:00:11.560 the following year. 494 01:00:11.560 --> 01:00:18.000 Lord Townsend had a prominent connection with the important periodical The Gazetteer, and 495 01:00:18.000 --> 01:00:25.680 in 1768, four years after Lord Townsend's death, an anonymous pamphlet on Considerations 496 01:00:25.680 --> 01:00:32.000 Questions on the Utility and Equity of the East India Trade argued once again for breaking 497 01:00:32.000 --> 01:00:39.520 the East India Company monopoly and lamented the death of Lord Townsend, so sound and knowledgeable 498 01:00:39.520 --> 01:00:41.960 on commercial questions. 499 01:00:41.960 --> 01:00:49.680 Clearly, Lord Townsend was far more influential in mid-18th century England than later historians 500 01:00:49.680 --> 01:00:51.000 would know. 501 01:00:51.000 --> 01:01:00.000 Moreover, he was both an example and an embodiment of a rising tide of laissez-faire sentiment in the Britain of that era.