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NOTE 11. Mercantilism and Freedom in England from the Civil War to 1750

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Chapter 11. Mercantilism and Freedom in England from the Civil War to 1750.

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1. The Peteyites. Davenant, King, and the Law of Demand.

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Jonathan Swift's immodest proposal should have provided the last word on political arithmetic,

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Except that an epilogue has been furnished by the quantophrenic and metromantic folly

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of modern historians of economic thought, who have resurrected a Baconian or Petite

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quantitative law expounded in the 1690s as if it were a veritable marvel of anticipation

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of modern econometrics.

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Charles Davenant, 1656-1714, son of a poet laureate and dramatist, was an attorney who

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spent his life scrambling for the main chance.

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To supplement his meager income from law practice, he managed to obtain the appointment of Commissioner

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of Excise in 1678.

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By the mid-1680s, Davenant was making a handsome salary as commissioner and was also a member

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of Parliament.

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His comfortable and placid existence, however, was grievously disrupted by the Revolution

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of 1688, which lost Davenant his high post.

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Moreover, substantial loans of his to the Crown of Charles II remained unpaid.

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A Tory confronting a Whig regime, Davenant now began to turn his attention to writing

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economic tracts on the problems of the day.

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All his publications centered around special pleading for his own political interests,

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a quest for subsidy or for resuming his high post in the government.

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Davenance First Tracked, an essay upon the ways and means of supplying the war, was published

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in 1694 after five years of war with the Dutch, and after the same number of years of Davenance

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David's trying unsuccessfully to get back his old post as commissioner of excise.

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The burden of the tract was denouncing the government for financing any part of the war

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by public debt, and urging instead that it rely almost totally on the excise, coincidentally

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David's own area of expertise.

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After again denouncing the government that stubbornly refused to see his own virtues,

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Davenant has been termed inconsistent and confused on the free trade issue, sometimes appearing

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to favor free trade and other times favoring protection.

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But these inconsistencies magically clear up if we realize that Davenant, in an attempt

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to get on the East India Company bandwagon, revived the by now grand 17th century tradition

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of arguing about the rights and wrongs of the East India trade.

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Davenant unsurprisingly took the standard money in line of supporting an overall or

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general favorable balance of trade, but pointed out the absurdity of trying to balance trade

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with each country and defended the East India Company's deficit with the Far East.

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Davenant's pro-East India trade position was expressed in his 1696 tract, Essay on the

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East India Trade.

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The following year, Davenant urged the East India Company to send him to India.

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Failing that, Davenant continued to curry favour with the Company by publishing two

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discourses on the public revenues and on the trade of England, 1697 and 1698, and another

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Another Essay upon the Balance of Trade in 1699, continuing his Money in Foreign Trade

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analysis.

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By 1698, indeed, Charles Davenin's fortune had changed.

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He was now a Tory member of parliament, and the East India Company agreed to send him

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to India.

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From then on, Davenin's writings were mainly strictly political, and in 1703 he finally

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Davenot was in and out of trouble, however.

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His writings changed radically from moderation to extremism and back with each change of

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the political winds, or from Tory to Whig, until he ended his career generally scorned

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and Trusted by None in Financial Difficulties and Living on the Largesse of his Old Friend,

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James Bridges, the Duke of Chandos.

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All in all, his biographer, Professor Waddell, does not seem too severe when he concludes

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that Davenin's career was thus not much of a success.

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He lacked the force of personality and obvious integrity necessary for the role he tried

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to Play, that of a partisan pamphleteer who was yet a man of independent judgment and

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not a mere hack.

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He was on the losing side in nearly every controversy he joined.

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He proved incapable of managing his own affairs and became a burden on his friends.

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He was neither an original thinker nor a practical man of affairs, but merely a competent publicist.

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The relationship between his writings and his personal circumstances suggests that his

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enemies had some excuse for regarding him as a purely self-seeking and mercenary time

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server.

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It is intriguing that Davenant, as a devoted follower of political arithmetic, would try

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to justify his self-seeking wavering by employing political arithmetic as a kind of cost-benefit

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Analysis, in which the statesman, possessing a computing head, arrives at a balance of

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advantages by summing up the difficulties on either side and by computing upon the whole.

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In that way, he shall be able to form a sound judgment and to give right advice, and this

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is what we mean by political arithmetic.

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Davenant would be a forgotten and no-account minor mercantilist writer, except for the

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extravagant praise lavished by modern quantophrenic historians of thought upon a previously unknown

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and alleged economic law discovered by Davenant and by his quiet political arithmetical and

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political ally, the accountant Gregory King, 1648-1712.

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This law of demand is now hailed as the origin of econometrics, predating Bernoulli's alleged

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law of the diminishing utility of money of 1738.

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Embarrassing adulation has been heaped upon this absurd law by modern economists zealously

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trying to find prefigurements of econometric science.

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There has been much confusion on the precise credit for authorship of this alleged law,

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how attribution should be shared between King and Davenant, and even, solemnly, whether

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it should be called the Davenant-King or the King-Davenant law, as valueless a piece of

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scholarly disputation as has appeared in many a moon.

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The law first appeared in Devenin's essay upon the balance of trade of 1699, citing

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an unpublished manuscript by King, The Natural and Political Observations, written in 1696.

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The law states, baldly and without evidence, that the following will happen when the supply

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of the harvest of corn, wheat, is reduced below the usual amount.

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Not simply, as has been known since the scholastics, that a lower supply of a product will tend

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to raise the price, but that the effect will be a definite quantitative relation as follows.

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Reduction of corn harvest, one-tenth, increase in corn price, three-tenths.

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Reduction of corn harvest, two-tenths, increase in corn price, eight-tenths.

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Reduction of corn harvest, three-tenths, increase in corn price, sixteen-tenths.

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Reduction of corn harvest, four-tenths, increase in corn price, twenty-eight-tenths.

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Reduction of corn harvest, five-tenths, increase in corn price, forty-five-tenths.

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Modern economists have generally, Pacey Alfred Marshall, grievously misinterpreted this quantitative

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A quantitative statement as a demand schedule or tabular basis for a demand curve, and as

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a pioneering attempt to measure the elasticity of such a curve.

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But the grave fallacy here is that this quantitative relation has nothing whatever to do with the

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consumer demand schedule that plays such a deservedly important part in modern economics.

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The genuine demand schedule is hypothetical, subjective and instantaneous.

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All it says is that at a given moment, at price X, consumers would purchase a certain

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quantity Y of the product.

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And the point of this schedule is precisely that we don't know, and can't know, this

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subjective relation, that there is no way to find out, and that the only point of the

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The demand schedule is to show that, at any given time, the demand curve is falling.

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That is, as the price falls, the quantity demanded increases, and vice versa.

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Properly, the law is qualitative, and never quantitative, and there is never any way to

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establish such quantities.

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What the pro-davenant law economists fail to realize, then, is that even if this davenant

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table were based on historical fact, all it would establish is not a demand schedule or

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curve, but only the factual equilibrium points each year, that is, each year's price and

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quantity produced.

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These points have nothing to do with any genuine demand schedule or law of demand, which is

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strictly qualitative and subjective to the minds of consumers.

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Second, even if these historical data were correct, they would only establish a relation

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for the particular years and particular markets in question.

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They would in no sense establish any sort of law for the same continuing quantitative relationship

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between supply and price in any other year or place.

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But finally, there is no evidence that this table is based on any factual evidence at

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all.

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Thus, despite the solemn repetition of this table from the late 19th century onwards,

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And despite its alleged pioneering of econometric science, this davenant king table has no value

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whatever, either as factual data, as statistics, as econometrics, or as economic theory.

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It is testimony only to the quantifrenic folly of modern economics.

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And yet economists, striving desperately to maintain that the davenant king law must have

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of Clothes, have taken one of two contradictory directions in presuming the importance of

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the law, and sometimes have taken both stances at once.

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Thus, Jevons, in 1871, without any evidence at all, simply assumed that the Davenant King

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Table was accurate, and pronounced it a scandal that economists and statisticians hadn't yet

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matched these numbers in accuracy.

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On the other hand, William Hewell, an odd combination of expert Cambridge mathematician and arch-empiricist

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in the philosophy of science and economics, had, two decades earlier, in 1850, sensed

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that the Davenport table was really the mere working out of a mathematical formula, and

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yet he still assumed that it must have been based on empirical observations.

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Similarly, in his recent careful study, Professor Creedy has convincingly shown that the King

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Davenant numbers were the working out of the mathematical formula of factorial expansion

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of a polynomial, a method first discovered by the English mathematician James Gregory

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and then used by Isaac Newton for his great work in physics.

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But after usefully pointing out how King could have rapidly discovered and used the new Gregory

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Newton method, Creedy, instead of concluding sensibly that the statistical or econometric

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soundness of the Davenant-King law lies in ruins, blithely proceeds to save the theory

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by simply asserting that it was quite possible that the polynomial formula was fitted to

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to Actual Observations.

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Quite possible.

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But there is no evidence whatever.

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And since this law was never replicated, and was even changed by King, it is far more likely

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that, enchanted with the new math, says Creedy himself, concedes, hypothetical values of

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coefficients were used with an arbitrarily chosen polynomial in order to generate the

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The Turmoil of the English Civil War in the 1640s and 1650s generated political and institutional

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Civil Upheaval, and stimulated radical thinking about politics.

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Since the Civil War was fought over religion and politics, much of the new thinking was

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grounded in or inspired by religious principles and visions.

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Thus, as we shall see further in the chapter on the roots of Marxism, millennial communist

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sects popped up again, for the first time since the Anabaptist frenzy of the early 16th

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In a series of notable debates within the

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Republican Army, notably between the Cromwellians and the Levellers.

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The Levellers, led by John Lilburn, Richard Overton and William Walwyn, worked out a remarkably

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consistent libertarian doctrine, upholding the rights of self-ownership, private property,

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religious freedom for the individual, and minimal government interference in society.

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The rights of each individual to his person and property, furthermore, were natural.

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That is, they were derived from the nature of man and the universe, and therefore were

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not dependent on, nor could they be abrogated by, government.

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And while the economy was scarcely a primary focus of the levelers, their adherence to

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a free market economy was a simple derivation from their stress on liberty and the rights

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of Private Property.

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For a while it seemed that the Levellers would triumph in the Civil War, but Cromwell decided

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to resolve the army debates by the use of force, and he established his coercive dictatorship

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and radical Puritan theocracy by placing the Leveller leadership in jail.

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The victory of Cromwell and his Puritans over the Levellers proved fateful for the course

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of English History, for it meant that republicanism in the eyes of the English would be forever

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associated with the bloody rule of Cromwell's saints, the reign of religious fanaticism

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and the sacking of the great English cathedrals.

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Hence the death of Cromwell led swiftly to the restoration of the stewards and the permanent

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discrediting of the republican cause.

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It is likely, on the contrary, that a leveler rule of freedom, religious toleration and

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minimal government might have proved roughly acceptable to the English people, and might

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have ensured a far more libertarian English polity than actually evolved after the Restoration

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and the Whig settlement.

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Historiographical discussion of the great libertarian political theorist John Locke

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Block, 1632-1704, who emerged to prominence after the Civil War, and particularly in the

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1680s, has been mired in a welter of conflicting interpretations.

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Was Lock a radically individualistic political thinker, or a conservative Protestant scholastic?

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An individualist, or a majoritarian?

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A pure philosopher, or a revolutionary intriguer?

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A Radical Harbinger of Modernity, or One Who Harked Back to the Medieval, or to Classical

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Virtue.

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Most of these interpretations are, oddly enough, not really contradictory.

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By this point we should realize that the scholastics may have dominated medieval and post-medieval

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traditions, but that, despite this fact, they were pioneers and elaborators of the natural

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Natural Law and Natural Rights Traditions.

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The pitting of tradition versus modernity is largely an artificial antithesis.

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Moderns like Locke, or perhaps even Hobbes, may have been individualists and right thinkers,

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but they were also steeped in scholasticism and natural law.

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Locke may have been and indeed was an ardent Protestant, but he was also a Protestant scholastic

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Catholic, heavily influenced by the founder of Protestant scholasticism, the Dutchman

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Hugo Grotius, who in turn was heavily influenced by the late Spanish Catholic scholastics.

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As we have already seen, such great late 16th century Spanish Jesuit scholastics as Suarez

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and Mariana were contractual natural rights thinkers, with Mariana being positively pre-Lacian

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in his insistence on the right of the people to resume the rights of sovereignty they had

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previously delegated to the king.

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While Locke developed libertarian natural rights thought more fully than his predecessors,

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it was still squarely embedded in the scholastic natural law tradition.

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Neither are John Pocock and his followers convincing in trying to posit an artificial

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classical distinction and clash between the libertarian concerns of Locke or his later

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followers on the one hand, and devotion to classical virtue on the other.

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In this view, 18th century Lockean libertarians, from Cato to Jefferson, become magically transmuted

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from radical individualists and free marketeers into nostalgic reactionaries, harking back

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Back to Ancient or Renaissance Classical Virtue.

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Followers of such virtue somehow become old-fashioned communitarians rather than modern individualists.

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And yet, why can't libertarians and opposers of government intervention also oppose government

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corruption and extravagance?

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Indeed, the two generally go together.

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As soon as we realize that generally, and certainly until Bentham, devotees of liberty, property

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and free markets have generally been moralists as well as adherents of a free market economy,

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the Pocockian antitheses begin to fall apart.

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To 17th and 18th century libertarians, indeed to libertarians in most times and places,

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Attacks on Government Intervention and on Government Moral Corruption go happily hand-in-hand.

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There are still anomalies in John Locke's career and thought, but they can be cleared

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up by the explicit discussion and implications of the impressive work by Richard Ashcraft.

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Essentially, Ashcraft demonstrates that Locke's career can be divided into two parts.

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Locke's father, a country lawyer and son of minor Puritan country gentry, fought in Cromwell's

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army and was able to use the political pull of his mentor, Colonel Alexander Popham, Member

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of Parliament, to get John into the prominent Westminster School.

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At Westminster, and then at Christchurch, Oxford, Locke obtained a B.A. and then an

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and MA in 1658, then became a lecturer at the college in Greek and Rhetoric in 1662,

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and became a medical student and then a physician in order to stay at Oxford without having

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to take holy orders.

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Despite or perhaps because of Locke's Puritan background and patronage, he clearly came

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came under the influence of the Baconian scientists at Oxford, notably including Robert Boyle,

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and hence he tended to adopt the scientific, empiricist, low-key absolutist viewpoint of

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his friends and mentors.

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While at Oxford, Locke and his colleagues enthusiastically welcomed the restoration

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of Charles II, and indeed the King himself ordered Oxford University to keep Locke as

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as a Medical student without having to take holy orders.

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While at Oxford, Locke adopted the empiricist methodology and sensate philosophy of the

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Baconians, leading to his later Essay Concerning Human Understanding.

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Moreover, in 1661, Locke, this later champion of religious toleration, wrote two tracts

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In 1668, Locke was elected to the Royal Society, joining his fellow Baconian scientists.

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Something happened to John Locke in the year 1666, however, when he became a physician,

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and in the following year, when he became personal secretary, advisor, writer, theoretician

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and Close Friend of the Great Lord Ashley, Anthony Ashley Cooper, who in 1672 was named

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the First Earl Shaftesbury.

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It was due to Shaftesbury that Locke, from then on, was to plunge into political and economic

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philosophy, and into public service as well as revolutionary intrigue.

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Locke adopted from Shaftesbury the entire classical liberal Whig outlook, and it was

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Shaftesbury who converted Locke into a firm and lifelong champion of religious toleration

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and into a libertarian exponent of self-ownership, property rights and a free market economy.

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It was Shaftesbury who made Locke into a libertarian and who stimulated the development of Locke's

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libertarian system.

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John Locke, in short, quickly became a Shaftesburyite, and thereby a classical liberal and libertarian.

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All his life, and even after Shaftesbury's death in 1683, Locke only had words of adulation

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for his friend and mentor.

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Locke's epitaph for Shaftesbury declared that the latter was a vigorous and indefatigable

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champion of civil and ecclesiastical liberty.

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The editor of the definitive edition of Locke's Two Treatises of Government justly writes

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that without Shaftesbury, Locke would not have been Locke at all.

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This truth has been hidden all too often by historians who have had an absurdly monastic

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horror of how political theory and philosophy often develop in the heat of political and

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ideological battle.

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Instead, many felt they had to hide this relationship in order to construct an idealized image of

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Locke, the pure and detached philosopher, separate from the grubby and mundane political

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concerns of the real world.

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Professor Ashcraft also shows how Locke and Shaftesbury began to build up, even consciously,

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a neo-leveler movement, elaborating doctrines very similar to those of the levelers.

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Locke's entire structure of thought in his Two Treatises of Government, written in 1681

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and 1682 as a schema for justifying the forthcoming Whig Revolution against the stewards, was

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an elaboration and creative development of leveler doctrine.

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The beginnings in self-ownership or self-propriety, the deduced right to property and free exchange,

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the justification of government as a device to protect such rights, and the right of overturning

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a government that violates or becomes destructive of those ends.

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One of the former Leveller leaders, Major John Wildman, was even close to the Locke-Shaftesbury

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set during the 1680s.

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The deep affinity between Locke and scholastic thought has been obscured by the undeniable

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fact that to Locke, Shaftesbury and the Whigs, the real enemy of civil and religious liberty,

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the great advocate of monarchical absolutism during the late seventeenth century and into

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the eighteenth century, was the Catholic Church.

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For, by the mid-17th century, Catholicism, or popery, was identified not with the natural

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rites and the checks on royal despotism as of yore, but with the absolutism of Louis

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XIV of France, the leading absolutist state in Europe, and earlier with absolutist Spain.

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For the Reformation, after a century, had succeeded in taking the wraps off monarchical

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Tyranny in the Catholic as well as Protestant countries.

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Ever since the turn of the seventeenth century, indeed, the Catholic Church in France, Jansenist

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and Royalist in spirit, had been more a creature of royal absolutism than a check on its excesses.

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In fact, by the seventeenth century, the case could be made that the most prosperous country

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In Europe, which was also the freest, in economics, in civil liberties, in a decentralized polity,

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and in abstinence from imperial adventures, was Protestant Holland.

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Thus it was easy for the English Whigs and classical liberals to identify the absolutism,

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the arbitrary taxes, the controls, and the incessant wars of the stewards, with the Catholicism

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The English and American colonial tradition, even the libertarian tradition, became imbued with a fanatical anti-Catholicism, the idea of including evil Catholics in the rubric of religious toleration, was rarely entertained.

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One common confusion about Locke's systematic theory of property needs to be cleared up—Locke's theory of labor.

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Locke grounded his theory of natural property rights in each individual's right of self-ownership, of a propriety in his own person.

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What, then, establishes anyone's original right of material, or landed or natural resource property, apart from his own person?

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In Locke's brilliant and very sensible theory, property is brought out of the commons, or out of non-property, into one's private ownership,

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In the same way that a man brings non-used property into use, that is, by mixing his self-owned labor, his personal energy, with a previously unused and unowned natural resource, thereby bringing that resource into productive use, and hence into his private property.

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Private property of a material resource is established by first use.

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These two axioms, self-ownership of each person, and the first use, or homesteading, of natural resources, establishes the naturalness, the morality, and the property rights underlying the entire free market economy.

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For if a man justly owns material property he has settled in and worked on, he has the deduced right

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to exchange those property titles for the property someone else has settled in and worked on with his

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labor. For if someone owns property he has a right to exchange it for someone else's property,

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or to give that property away to a willing recipient.

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This chain of deduction establishes the right of free exchange and free contract, and the

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right of bequest, and hence the entire property rights structure of the market economy.

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Many historians, especially Marxists, have taken glee in claiming that John Locke is

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is thereby the founder of the Marxian labor theory of value, which Marx in turn acquired

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from Smith and especially Ricardo.

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But Locke's is a labor theory of property, that is, how material property justly comes

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into ownership by means of labor exertion or mixing.

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This theory has absolutely nothing to do with what determines the value or price of goods

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or services on the market, and therefore has nothing to do with the later labor theory

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of value.

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3.

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Child, Lock, the Rate of Interest, and the Coinage

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One of the most prominent economic writers of the latter half of the 17th century in

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in England was the eminent Sir Josiah Child, 1630-1699. He was a wealthy merchant who was

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usually affiliated with the powerful East India Company, and indeed rose to be its governor,

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and the central concern in his economic writings was the by now traditional apologetics for

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the East India interests. That is, no one need worry about balance of trade from one

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Unwary historians were also entrapped by many of Child's fulminations against monopolies

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and monopolistic privileges granted by the state to cities, guilds or trading companies.

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Again, they assumed that Child was an advocate of laissez-faire.

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What they overlooked was that Child was always careful to defend as a special exception the

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monopoly granted to the East India Company.

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Child never attained the genuine laissez-faire view that even the overall balance of trade

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was unimportant.

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On the contrary, he insisted that gold and silver bullion could only be exported freely

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if the overall effect of such export would be a net import of specie, in other words,

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an overall favorable balance of trade.

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Unfortunately, Child's work was interpreted as solid laissez-faire doctrine in the 18th

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century, and particularly by the mid-18th century devotee of laissez-faire, Viscount

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de Gournay, who translated Childe into French as part of his program of spreading laissez-faire

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doctrine in France.

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As a result, Childe's work achieved undeserving fame in the following century.

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One of Josiah Childe's main deviations from free market and laissez-faire doctrine was

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to agitate for one of the favorite programs of the mercantilists, to push the legal maximum

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From the early decades of the 17th century, English mercantilists were bitter at the superior

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prosperity and economic growth enjoyed by the Dutch.

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Observing that the rate of interest was lower in Holland than in England, they chose to

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to leap to the causal analysis that the cause of the superior Dutch prosperity was Holland's

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low rate of interest, and that therefore it was the task of the English government to

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force the maximum rate of interest down until the interest rate was lower than in Holland.

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The first prominent mercantilist tract calling for lowering the interest rate was that of

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The Country Gentleman, Sir Thomas Culpepper, in his brief, Tracked Against the High Rate

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of Usury, 1621.

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Culpepper declared that Dutch prosperity was caused by their low rate of interest,

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that the English high interest rate crippled trade, and therefore that the government should

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force maximum interest rates down to out-compete the Dutch.

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Culpepper's pamphlet played a role in parliaments lowering the maximum usury rate from 10 to

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8 percent. Culpepper's tract was reprinted several times and parliament duly pushed the

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maximum rate in later years down to 8 and then 6 percent. Each time, however, resistance

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increased, especially as government intervention forced down the maximum rate repeatedly.

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Finally, in 1668, the mercantilists tried for their most important conquest, a lowering

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of the maximum interest rate from 6 to 4 percent, which would presumably result in rates below

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the Dutch.

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As a propaganda accompaniment to this bill, Culpepper's son, Sir Thomas Culpepper, in

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1668 reprinted his father's tract, along with one of his own, whose title says it all.

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A discourse showing the many advantages which will accrue to this kingdom by the abatement

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of usury, together with the absolute necessity of reducing interest of money to the lowest

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rate it bears in other countries.

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Culpepper Sr.'s pamphlet was published along with the influential contribution by the already

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by the eminent merchant and man of affairs, Josiah Child, in his first pamphlet,

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Brief Observations Concerning Trade and Interest of Money.

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Child was a prominent member of the King's Council of Trade, established in 1668,

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to advise him on economic matters.

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Child treated lowering the maximum rate of interest to 4%

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has virtually a panacea for all economic ills.

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A lower rate of interest would vivify trade and raise the price of land.

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It would even cure drunkenness.

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Josiah Child's pamphlet and his testimony before Parliament were centerpieces of the

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debate swirling around the proposal.

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Child's critics pointed out effectively that low interest in a country is the effect of

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of Plentiful Savings and of Prosperity, and not their Cause.

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Thus, Edward Waller, during the House of Commons debate, pointed out that it is with money

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as it is with other commodities.

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When they are most plentiful, then they are cheapest.

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So make money, savings, plentiful, and the interest will be low.

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Colonel Silius Titus pressed on to demonstrate that, since low interest is the consequence

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and not the Cause of Wealth, any maximum usury law would be counterproductive, for by outlawing

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currently legal loans its effect would be to make usurers call in their loans, traders

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would be ruined and mortgages foreclosed, gentlemen who needed to borrow would be forced

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to break the law.

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Child feebly replied to his critics that usurers would never not lend their money, that they

379
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They Were Forced to Take the Legal Maximum or Lumpit

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On the idea that low interest was an effect, not a cause, Child merely recited the previous

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times that English government had forced interest lower, from 10 to 8 to 6 percent.

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Why not then a step further?

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Child of course did not deign to take the scenario further and ask why the state did

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Child's critics raised another telling point.

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How is it that the Dutch were able to get their interest rates low purely by economic

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means?

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How come the Dutch did not need a usury statute?

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Child's absurd rejoinder was that the Dutch would have pushed their interest rate down

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It should be noted that this low interest deviation from laissez-faire accorded with

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Josiah Child's personal economic interest.

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As a leading East India merchant, Child and his colleagues were great borrowers, not lenders,

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and so were interested in cheap credit.

393
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Even more revealing was Child's reply to the charge of the author of Interest of Money

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Mistaken, that Child was trying to engross all trade into the hands of a few rich merchants

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who have money enough of their own to trade with, to the excluding of all young men that

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want it.

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Child replied to that shrewd thrust that on the contrary his East India Company was not

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in need of a low rate, since it could borrow as much money as it pleased at 4%.

399
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But that, of course, is precisely the point.

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Sir Josiah Child and his ilk were eager to push down the rate of interest below the free

401
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market level in order to create a shortage of credit, and thereby to ration credit to

402
00:42:51.320 --> 00:42:58.960
to the prime borrowers, to large firms who could afford to pay 4% or less, and away from

403
00:42:58.960 --> 00:43:01.640
more speculative borrowers.

404
00:43:01.640 --> 00:43:08.400
It was precisely because Child knew full well that a forced lowering of interest rates would

405
00:43:08.400 --> 00:43:15.740
indeed engross all trade into the hands of a few rich merchants, that Child and his colleagues

406
00:43:15.740 --> 00:43:21.260
were so eager to put this mercantilist measure into effect.

407
00:43:21.260 --> 00:43:27.980
When the House of Lords Committee held hearings on the interest-lowering bill during 1668

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and 1669, it decided to hold testimony from members of the King's Council of Trade, of

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whom Josiah Child was a central figure.

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But another important figure was a very different member of the Council of Trade, and also a

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As a classical liberal, Ashley opposed the bill, and at his behest, Locke wrote his first

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work on economic matters, the influential, though as yet unpublished manuscript, some

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Some of the Consequences that are Like to Follow upon Lessening of Interest to 4%, 1668.

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Locke made clear in this early work his profound insight as well as thorough going commitment

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to a free market economy, as well as to his later structure of property rights theory.

416
00:44:29.540 --> 00:44:33.540
Locke displayed straight away his skill at polemics.

417
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The essay was basically a critique of child's influential work.

418
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First, Locke cut through the holistic rhetoric.

419
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Of course, he pointed out, the borrowing merchant will be happy to pay only 4% interest.

420
00:44:48.680 --> 00:44:54.500
But this gain to the borrower is not a gain for the national or general good, since the

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lender loses by the same amount.

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Not only would a forced lowering of interest be at best redistributive, but, Locke added,

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the measure would restrict the supply of savings and credit, thereby making the economy worse

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off.

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It would be better, he concluded, if the legal rate of interest were set at the natural rate,

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that is, the free market rate, which the present scarcity of funds makes it naturally at.

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In short, the best interest rate is the free market, or the natural interest rate, set

428
00:45:32.940 --> 00:45:40.220
by the workings of free man under natural law, that is, the rate determined by the supply

429
00:45:40.220 --> 00:45:46.060
of and demand for money loans at any given time.

430
00:45:46.060 --> 00:45:52.900
Whether or not Locke or Ashley proved decisive, the House of Lords finally killed the 4% bill

431
00:45:52.900 --> 00:45:55.820
in 1669.

432
00:45:55.820 --> 00:46:02.140
Three years later, Ashley became Chancellor of the Exchequer as Earl Shaftesbury, and

433
00:46:02.140 --> 00:46:08.260
the following year, Locke became Secretary to the Council for Trade and Plantations,

434
00:46:08.260 --> 00:46:11.980
which replaced the old Council of Trade.

435
00:46:11.980 --> 00:46:19.020
At the end of 1674, however, Shaftesbury was fired, the Council of Trade and Plantations

436
00:46:19.020 --> 00:46:25.580
John Mises was disbanded, and Locke followed his mentor into political opposition, revolutionary

437
00:46:25.580 --> 00:46:29.940
intrigues, and exile in Holland.

438
00:46:29.940 --> 00:46:34.980
John Locke finally returned to London with the overthrow of the Stuarts and the revolution

439
00:46:34.980 --> 00:46:41.660
of 1688, returning in triumph on the same ship as Queen Mary.

440
00:46:41.660 --> 00:46:47.900
Locke returned to England to find the old East India crowd up to their old tricks.

441
00:46:47.900 --> 00:46:54.260
was in dire financial straits, Charles II having ruined public credit with his stop

442
00:46:54.260 --> 00:47:01.300
of the Exchequer, and the East India people had once again introduced a bill in 1690 for

443
00:47:01.300 --> 00:47:05.820
the compulsory lowering of interest to 4%.

444
00:47:05.820 --> 00:47:13.020
At the same time, Sir Josiah Child was brought back to expand his pamphlet into a Discourse

445
00:47:13.020 --> 00:47:20.100
Discourse About Trade, 1690, an anonymous book reprinted three years later as A New

446
00:47:20.100 --> 00:47:26.060
Discourse of Trade, with Child's name blazoned on the title page.

447
00:47:26.060 --> 00:47:31.700
It was the New Discourse that was to make such an excessive impression on 18th century

448
00:47:31.700 --> 00:47:32.700
thinkers.

449
00:47:32.700 --> 00:47:38.660
In addition to the renewed arguments for lower interest, the Discourse and the New Discourse

450
00:47:38.660 --> 00:47:45.760
added more apologetics for the East India Line on trade and on monopolies.

451
00:47:45.760 --> 00:47:53.180
In response, John Locke's new political patron, now that Shaftesbury had died, Sir John Summers,

452
00:47:53.180 --> 00:48:01.460
Member of Parliament, apparently asked Locke to expand his 1668 paper to refute Childs

453
00:48:01.460 --> 00:48:05.460
and other proponents of the 4% bill.

454
00:48:05.460 --> 00:48:10.620
Locke responded the following year with his expanded book, Some Considerations of the

455
00:48:10.620 --> 00:48:17.980
Consequences of the Lowering of Interest and Raising the Value of Money, 1692, which brought

456
00:48:17.980 --> 00:48:23.340
Locke's previously unpublished arguments into public debate.

457
00:48:23.340 --> 00:48:28.540
Locke's work may have been influential in the 4% bill once again being killed in the

458
00:48:28.540 --> 00:48:31.040
House of Lords.

459
00:48:31.040 --> 00:48:37.280
The latter part of Locke's considerations was devoted to the great re-coinage controversy

460
00:48:37.280 --> 00:48:41.760
into which England had been plunged since 1690.

461
00:48:41.760 --> 00:48:48.320
In that year, England's basic money stock of silver coins had deteriorated so far due

462
00:48:48.320 --> 00:48:56.120
to erosion and coin clipping, and the contrast of these inferior hammered coins to the newer

463
00:48:56.120 --> 00:49:03.680
Uneroded and Unclipped Milled Coins was so great that Gresham's Law began to operate

464
00:49:03.680 --> 00:49:05.320
intensely.

465
00:49:05.320 --> 00:49:11.700
People either circulated the overvalued eroded coins and hoarded the better ones, or else

466
00:49:11.700 --> 00:49:17.640
passed the poor coins at their lower weight rather than at their face value.

467
00:49:17.640 --> 00:49:25.200
By 1690, the old hammered coins had lost approximately one-third of their worth compared to their

468
00:49:25.200 --> 00:49:27.640
Fair-Face Value.

469
00:49:27.640 --> 00:49:33.880
It was increasingly clear that the mint had to offer re-coinage into the new superior

470
00:49:33.880 --> 00:49:34.880
coins.

471
00:49:34.880 --> 00:49:36.440
But at what rate?

472
00:49:36.440 --> 00:49:43.080
Mercantilists, who tended to be inflationist, clamored for debasement, that is, re-coinage

473
00:49:43.080 --> 00:49:49.640
at the lighter weight, devaluing silver coin and increasing the supply of money.

474
00:49:49.640 --> 00:49:56.060
In the meanwhile, the monetary problem was aggravated by a burst of bank credit inflation

475
00:49:56.060 --> 00:50:03.540
created by the new Bank of England, founded in 1694 to inflate the money supply and finance

476
00:50:03.540 --> 00:50:06.080
the government's deficit.

477
00:50:06.080 --> 00:50:15.580
As the coinage problem came to a head in that same year, William Lowndes, 1652-1724, Secretary

478
00:50:15.580 --> 00:50:21.860
of the Treasury and the government's main monetary expert, issued a report on the amendment

479
00:50:21.860 --> 00:50:30.700
of silver coin in 1695, calling for accepting the extant debasement and for officially debasing

480
00:50:30.700 --> 00:50:40.380
the coinage by 25%, lightening the currency name by a 25% lower weight of silver.

481
00:50:40.380 --> 00:50:47.380
In his considerations, Locke had denounced debasement as deceitful and illusionist.

482
00:50:47.380 --> 00:50:53.460
What determined the real value of a coin, he declared, was the amount of silver in the

483
00:50:53.460 --> 00:50:57.980
coin, and not the name granted to it by the authorities.

484
00:50:57.980 --> 00:51:06.340
Debasement, Locke warned in his magnificently hard-money discussion, is illusory and inflationist.

485
00:51:06.340 --> 00:51:14.160
If coins, for example, are devalued by one-twentieth, when men go to market to buy any other commodities

486
00:51:14.160 --> 00:51:20.140
with their new but lighter money, they will find twenties of their new money will buy

487
00:51:20.140 --> 00:51:24.780
no more than nineteen would before.

488
00:51:24.780 --> 00:51:31.980
Debasement merely dilutes the real value, the purchasing power, of each currency unit.

489
00:51:31.980 --> 00:51:37.660
Threatened by the Lound's report, Locke's patron, John Summers, who had been made Lord

490
00:51:37.660 --> 00:51:46.100
Keeper of the Great Seal in a new Whig ministry in 1694, asked Locke to rebut Lound's position

491
00:51:46.100 --> 00:51:48.940
before the Privy Council.

492
00:51:48.940 --> 00:51:55.420
Locke published his rebuttal later in the year 1695, further considerations concerning

493
00:51:55.420 --> 00:51:58.460
raising the value of money.

494
00:51:58.460 --> 00:52:04.760
This publication was so well received that it went into three editions within a year.

495
00:52:04.760 --> 00:52:10.760
Locke superbly put his finger on the supposed function of the mint, to maintain the currency

496
00:52:10.760 --> 00:52:16.300
as purely a definition or standard of weight of silver.

497
00:52:16.300 --> 00:52:23.160
Any debasement, any change of standards, would be as arbitrary, fraudulent and unjust as

498
00:52:23.160 --> 00:52:28.240
the government's changing the definition of a foot or a yard.

499
00:52:28.240 --> 00:52:35.240
Not put it dramatically, one may as rationally hope to lengthen a foot by dividing it into

500
00:52:35.240 --> 00:52:39.840
15 parts instead of 12 and calling them inches.

501
00:52:39.840 --> 00:52:48.960
Furthermore, government, the supported guarantor of contracts, thereby leads in contract breaking.

502
00:52:48.960 --> 00:52:55.540
The reason why it should not be changed is this, because the public authority is guarantee

503
00:52:55.540 --> 00:53:01.840
for the performance of all legal contracts, but men are absolved from the performance

504
00:53:01.840 --> 00:53:07.780
of their legal contracts if the quantity of silver under settled and legal denominations

505
00:53:07.780 --> 00:53:09.500
be altered.

506
00:53:09.500 --> 00:53:17.260
The landlord here and creditor are each defrauded of 20% of what they contracted for and is

507
00:53:17.260 --> 00:53:19.300
their due.

508
00:53:19.300 --> 00:53:25.100
One of Locke's opponents both on coinage and on interest was the prominent builder,

509
00:53:25.100 --> 00:53:32.580
Fire Insurance Magnet and Land Bank Projector, Nicholas Barbone, 1637-1698.

510
00:53:32.580 --> 00:53:39.860
Barbone, son of the fanatic London Anabaptist preacher and leather merchant and member of

511
00:53:39.860 --> 00:53:47.260
parliament, praise God Barbone, studied medicine and became an M.D. in Holland, moving to London

512
00:53:47.260 --> 00:53:51.560
and going into business in the early 1660s.

513
00:53:51.560 --> 00:53:57.300
In the same year as Child's discourse about trade, Barbone, who had just been elected

514
00:53:57.300 --> 00:54:05.220
to parliament, published the similarly titled Discourse of Trade, 1690, again time to push

515
00:54:05.220 --> 00:54:09.240
for the 4% interest bill in parliament.

516
00:54:09.240 --> 00:54:14.520
An inveterate debtor and projector, Barbone, of course, would have liked to push down his

517
00:54:14.520 --> 00:54:17.200
interest costs.

518
00:54:17.200 --> 00:54:24.140
In 1696, Barbone returned to the lists in a bitter attack on Locke's further considerations

519
00:54:24.140 --> 00:54:26.240
on the coinage.

520
00:54:26.240 --> 00:54:32.680
Arguing against Locke's market commodity or metalist view of money, Barbone, urging

521
00:54:32.680 --> 00:54:38.760
devaluation of silver, countered with the nominalist and statist view that money is

522
00:54:38.760 --> 00:54:44.280
not the market commodity but whatever government says it is.

523
00:54:44.280 --> 00:54:50.580
Barbone, Money is the instrument and measure of commerce, and not silver.

524
00:54:50.580 --> 00:54:56.840
It is the instrument of commerce from the authority of that government where it is coined.

525
00:54:56.840 --> 00:55:02.880
Fortunately, Locke's view triumphed, and the recointage was decided and carried out

526
00:55:02.880 --> 00:55:06.820
in 1696 on Lockean lines.

527
00:55:06.820 --> 00:55:12.740
The integrity of the weight of the silver denomination of currency was preserved.

528
00:55:12.740 --> 00:55:17.740
In the same year, Locke became the dominant commissioner of the newly constituted Board

529
00:55:17.740 --> 00:55:19.820
of Trade.

530
00:55:19.820 --> 00:55:25.500
Locke was appointed by his champion, Sir John Summers, who had become chief minister from

531
00:55:25.500 --> 00:55:29.060
1697 to 1700.

532
00:55:29.060 --> 00:55:35.660
When the Summers regime fell in 1700, Locke was ousted from the Board of Trade to retire

533
00:55:35.660 --> 00:55:39.020
until his death four years later.

534
00:55:39.020 --> 00:55:46.220
The Lockean recoinage was assisted by Locke's old friend, the great physicist Sir Isaac Newton,

535
00:55:46.220 --> 00:55:55.660
1642-1727, who, while still a professor of mathematics at Cambridge from 1669 on, also

536
00:55:55.660 --> 00:56:04.120
became Warden of the Mint in 1696, and rose to Master of the Mint three years later, continuing

537
00:56:04.120 --> 00:56:21.360
Barbone and Locke set the trend for two contrasting strands in 18th century monetary thought.

538
00:56:21.360 --> 00:56:28.760
Locke, the Protestant scholastic, was essentially in the hard-money, metalist, anti-inflationist

539
00:56:28.760 --> 00:56:31.120
tradition of the scholastics.

540
00:56:31.120 --> 00:56:39.120
Barbone, on the other hand, helped set the tone for the inflationist schemers and projectors of the next century.