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

0:00Chapter 11. Mercantilism and Freedom in England from the Civil War to 1750. 1. The Peteyites. Davenant, King, and the Law of Demand. Jonathan Swift's immodest proposal should have provided the last word on political arithmetic, Except that an epilogue has been furnished by the quantophrenic and metromantic folly of modern historians of economic thought, who have resurrected a Baconian or Petite quantitative law expounded in the 1690s as if it were a veritable marvel of anticipation of modern econometrics.

0:47Charles Davenant, 1656-1714, son of a poet laureate and dramatist, was an attorney who spent his life scrambling for the main chance. To supplement his meager income from law practice, he managed to obtain the appointment of Commissioner of Excise in 1678. By the mid-1680s, Davenant was making a handsome salary as commissioner and was also a member of Parliament. His comfortable and placid existence, however, was grievously disrupted by the Revolution of 1688, which lost Davenant his high post. Moreover, substantial loans of his to the Crown of Charles II remained unpaid.

1:35A Tory confronting a Whig regime, Davenant now began to turn his attention to writing economic tracts on the problems of the day. All his publications centered around special pleading for his own political interests, a quest for subsidy or for resuming his high post in the government. Davenance First Tracked, an essay upon the ways and means of supplying the war, was published in 1694 after five years of war with the Dutch, and after the same number of years of Davenance David's trying unsuccessfully to get back his old post as commissioner of excise. The burden of the tract was denouncing the government for financing any part of the war by public debt, and urging instead that it rely almost totally on the excise, coincidentally David's own area of expertise.

2:34After again denouncing the government that stubbornly refused to see his own virtues, Davenant has been termed inconsistent and confused on the free trade issue, sometimes appearing to favor free trade and other times favoring protection. But these inconsistencies magically clear up if we realize that Davenant, in an attempt to get on the East India Company bandwagon, revived the by now grand 17th century tradition of arguing about the rights and wrongs of the East India trade. Davenant unsurprisingly took the standard money in line of supporting an overall or general favorable balance of trade, but pointed out the absurdity of trying to balance trade with each country and defended the East India Company's deficit with the Far East.

3:34Davenant's pro-East India trade position was expressed in his 1696 tract, Essay on the East India Trade. The following year, Davenant urged the East India Company to send him to India. Failing that, Davenant continued to curry favour with the Company by publishing two discourses on the public revenues and on the trade of England, 1697 and 1698, and another Another Essay upon the Balance of Trade in 1699, continuing his Money in Foreign Trade analysis. By 1698, indeed, Charles Davenin's fortune had changed. He was now a Tory member of parliament, and the East India Company agreed to send him to India.

4:25From then on, Davenin's writings were mainly strictly political, and in 1703 he finally Davenot was in and out of trouble, however. His writings changed radically from moderation to extremism and back with each change of the political winds, or from Tory to Whig, until he ended his career generally scorned and Trusted by None in Financial Difficulties and Living on the Largesse of his Old Friend, James Bridges, the Duke of Chandos. All in all, his biographer, Professor Waddell, does not seem too severe when he concludes that Davenin's career was thus not much of a success.

5:19He lacked the force of personality and obvious integrity necessary for the role he tried to Play, that of a partisan pamphleteer who was yet a man of independent judgment and not a mere hack. He was on the losing side in nearly every controversy he joined. He proved incapable of managing his own affairs and became a burden on his friends. He was neither an original thinker nor a practical man of affairs, but merely a competent publicist. The relationship between his writings and his personal circumstances suggests that his enemies had some excuse for regarding him as a purely self-seeking and mercenary time server.

6:06It is intriguing that Davenant, as a devoted follower of political arithmetic, would try to justify his self-seeking wavering by employing political arithmetic as a kind of cost-benefit Analysis, in which the statesman, possessing a computing head, arrives at a balance of advantages by summing up the difficulties on either side and by computing upon the whole. In that way, he shall be able to form a sound judgment and to give right advice, and this is what we mean by political arithmetic. Davenant would be a forgotten and no-account minor mercantilist writer, except for the extravagant praise lavished by modern quantophrenic historians of thought upon a previously unknown and alleged economic law discovered by Davenant and by his quiet political arithmetical and political ally, the accountant Gregory King, 1648-1712.

7:13This law of demand is now hailed as the origin of econometrics, predating Bernoulli's alleged law of the diminishing utility of money of 1738. Embarrassing adulation has been heaped upon this absurd law by modern economists zealously trying to find prefigurements of econometric science. There has been much confusion on the precise credit for authorship of this alleged law, how attribution should be shared between King and Davenant, and even, solemnly, whether it should be called the Davenant-King or the King-Davenant law, as valueless a piece of scholarly disputation as has appeared in many a moon.

8:02The law first appeared in Devenin's essay upon the balance of trade of 1699, citing an unpublished manuscript by King, The Natural and Political Observations, written in 1696. The law states, baldly and without evidence, that the following will happen when the supply of the harvest of corn, wheat, is reduced below the usual amount. Not simply, as has been known since the scholastics, that a lower supply of a product will tend to raise the price, but that the effect will be a definite quantitative relation as follows. Reduction of corn harvest, one-tenth, increase in corn price, three-tenths.

8:51Reduction of corn harvest, two-tenths, increase in corn price, eight-tenths. Reduction of corn harvest, three-tenths, increase in corn price, sixteen-tenths. Reduction of corn harvest, four-tenths, increase in corn price, twenty-eight-tenths. Reduction of corn harvest, five-tenths, increase in corn price, forty-five-tenths. Modern economists have generally, Pacey Alfred Marshall, grievously misinterpreted this quantitative A quantitative statement as a demand schedule or tabular basis for a demand curve, and as a pioneering attempt to measure the elasticity of such a curve.

9:41But the grave fallacy here is that this quantitative relation has nothing whatever to do with the consumer demand schedule that plays such a deservedly important part in modern economics. The genuine demand schedule is hypothetical, subjective and instantaneous. All it says is that at a given moment, at price X, consumers would purchase a certain quantity Y of the product. And the point of this schedule is precisely that we don't know, and can't know, this subjective relation, that there is no way to find out, and that the only point of the The demand schedule is to show that, at any given time, the demand curve is falling.

10:32That is, as the price falls, the quantity demanded increases, and vice versa. Properly, the law is qualitative, and never quantitative, and there is never any way to establish such quantities. What the pro-davenant law economists fail to realize, then, is that even if this davenant table were based on historical fact, all it would establish is not a demand schedule or curve, but only the factual equilibrium points each year, that is, each year's price and quantity produced. These points have nothing to do with any genuine demand schedule or law of demand, which is strictly qualitative and subjective to the minds of consumers.

11:26Second, even if these historical data were correct, they would only establish a relation for the particular years and particular markets in question. They would in no sense establish any sort of law for the same continuing quantitative relationship between supply and price in any other year or place. But finally, there is no evidence that this table is based on any factual evidence at all. Thus, despite the solemn repetition of this table from the late 19th century onwards, And despite its alleged pioneering of econometric science, this davenant king table has no value whatever, either as factual data, as statistics, as econometrics, or as economic theory.

12:22It is testimony only to the quantifrenic folly of modern economics. And yet economists, striving desperately to maintain that the davenant king law must have of Clothes, have taken one of two contradictory directions in presuming the importance of the law, and sometimes have taken both stances at once. Thus, Jevons, in 1871, without any evidence at all, simply assumed that the Davenant King Table was accurate, and pronounced it a scandal that economists and statisticians hadn't yet matched these numbers in accuracy. On the other hand, William Hewell, an odd combination of expert Cambridge mathematician and arch-empiricist in the philosophy of science and economics, had, two decades earlier, in 1850, sensed that the Davenport table was really the mere working out of a mathematical formula, and yet he still assumed that it must have been based on empirical observations.

13:32Similarly, in his recent careful study, Professor Creedy has convincingly shown that the King Davenant numbers were the working out of the mathematical formula of factorial expansion of a polynomial, a method first discovered by the English mathematician James Gregory and then used by Isaac Newton for his great work in physics. But after usefully pointing out how King could have rapidly discovered and used the new Gregory Newton method, Creedy, instead of concluding sensibly that the statistical or econometric soundness of the Davenant-King law lies in ruins, blithely proceeds to save the theory by simply asserting that it was quite possible that the polynomial formula was fitted to to Actual Observations.

14:26Quite possible. But there is no evidence whatever. And since this law was never replicated, and was even changed by King, it is far more likely that, enchanted with the new math, says Creedy himself, concedes, hypothetical values of coefficients were used with an arbitrarily chosen polynomial in order to generate the The Turmoil of the English Civil War in the 1640s and 1650s generated political and institutional Civil Upheaval, and stimulated radical thinking about politics.

15:24Since the Civil War was fought over religion and politics, much of the new thinking was grounded in or inspired by religious principles and visions. Thus, as we shall see further in the chapter on the roots of Marxism, millennial communist sects popped up again, for the first time since the Anabaptist frenzy of the early 16th In a series of notable debates within the Republican Army, notably between the Cromwellians and the Levellers.

16:23The Levellers, led by John Lilburn, Richard Overton and William Walwyn, worked out a remarkably consistent libertarian doctrine, upholding the rights of self-ownership, private property, religious freedom for the individual, and minimal government interference in society. The rights of each individual to his person and property, furthermore, were natural. That is, they were derived from the nature of man and the universe, and therefore were not dependent on, nor could they be abrogated by, government. And while the economy was scarcely a primary focus of the levelers, their adherence to a free market economy was a simple derivation from their stress on liberty and the rights of Private Property.

17:15For a while it seemed that the Levellers would triumph in the Civil War, but Cromwell decided to resolve the army debates by the use of force, and he established his coercive dictatorship and radical Puritan theocracy by placing the Leveller leadership in jail. The victory of Cromwell and his Puritans over the Levellers proved fateful for the course of English History, for it meant that republicanism in the eyes of the English would be forever associated with the bloody rule of Cromwell's saints, the reign of religious fanaticism and the sacking of the great English cathedrals. Hence the death of Cromwell led swiftly to the restoration of the stewards and the permanent discrediting of the republican cause.

18:06It is likely, on the contrary, that a leveler rule of freedom, religious toleration and minimal government might have proved roughly acceptable to the English people, and might have ensured a far more libertarian English polity than actually evolved after the Restoration and the Whig settlement. Historiographical discussion of the great libertarian political theorist John Locke Block, 1632-1704, who emerged to prominence after the Civil War, and particularly in the 1680s, has been mired in a welter of conflicting interpretations. Was Lock a radically individualistic political thinker, or a conservative Protestant scholastic?

18:54An individualist, or a majoritarian? A pure philosopher, or a revolutionary intriguer? A Radical Harbinger of Modernity, or One Who Harked Back to the Medieval, or to Classical Virtue. Most of these interpretations are, oddly enough, not really contradictory. By this point we should realize that the scholastics may have dominated medieval and post-medieval traditions, but that, despite this fact, they were pioneers and elaborators of the natural Natural Law and Natural Rights Traditions. The pitting of tradition versus modernity is largely an artificial antithesis.

19:40Moderns like Locke, or perhaps even Hobbes, may have been individualists and right thinkers, but they were also steeped in scholasticism and natural law. Locke may have been and indeed was an ardent Protestant, but he was also a Protestant scholastic Catholic, heavily influenced by the founder of Protestant scholasticism, the Dutchman Hugo Grotius, who in turn was heavily influenced by the late Spanish Catholic scholastics. As we have already seen, such great late 16th century Spanish Jesuit scholastics as Suarez and Mariana were contractual natural rights thinkers, with Mariana being positively pre-Lacian in his insistence on the right of the people to resume the rights of sovereignty they had previously delegated to the king.

20:37While Locke developed libertarian natural rights thought more fully than his predecessors, it was still squarely embedded in the scholastic natural law tradition. Neither are John Pocock and his followers convincing in trying to posit an artificial classical distinction and clash between the libertarian concerns of Locke or his later followers on the one hand, and devotion to classical virtue on the other. In this view, 18th century Lockean libertarians, from Cato to Jefferson, become magically transmuted from radical individualists and free marketeers into nostalgic reactionaries, harking back Back to Ancient or Renaissance Classical Virtue.

21:28Followers of such virtue somehow become old-fashioned communitarians rather than modern individualists. And yet, why can't libertarians and opposers of government intervention also oppose government corruption and extravagance? Indeed, the two generally go together. As soon as we realize that generally, and certainly until Bentham, devotees of liberty, property and free markets have generally been moralists as well as adherents of a free market economy, the Pocockian antitheses begin to fall apart. To 17th and 18th century libertarians, indeed to libertarians in most times and places, Attacks on Government Intervention and on Government Moral Corruption go happily hand-in-hand.

22:23There are still anomalies in John Locke's career and thought, but they can be cleared up by the explicit discussion and implications of the impressive work by Richard Ashcraft. Essentially, Ashcraft demonstrates that Locke's career can be divided into two parts. Locke's father, a country lawyer and son of minor Puritan country gentry, fought in Cromwell's army and was able to use the political pull of his mentor, Colonel Alexander Popham, Member of Parliament, to get John into the prominent Westminster School. At Westminster, and then at Christchurch, Oxford, Locke obtained a B.A. and then an and MA in 1658, then became a lecturer at the college in Greek and Rhetoric in 1662, and became a medical student and then a physician in order to stay at Oxford without having to take holy orders.

23:26Despite or perhaps because of Locke's Puritan background and patronage, he clearly came came under the influence of the Baconian scientists at Oxford, notably including Robert Boyle, and hence he tended to adopt the scientific, empiricist, low-key absolutist viewpoint of his friends and mentors. While at Oxford, Locke and his colleagues enthusiastically welcomed the restoration of Charles II, and indeed the King himself ordered Oxford University to keep Locke as as a Medical student without having to take holy orders. While at Oxford, Locke adopted the empiricist methodology and sensate philosophy of the Baconians, leading to his later Essay Concerning Human Understanding.

24:17Moreover, in 1661, Locke, this later champion of religious toleration, wrote two tracts In 1668, Locke was elected to the Royal Society, joining his fellow Baconian scientists. Something happened to John Locke in the year 1666, however, when he became a physician, and in the following year, when he became personal secretary, advisor, writer, theoretician and Close Friend of the Great Lord Ashley, Anthony Ashley Cooper, who in 1672 was named the First Earl Shaftesbury.

25:06It was due to Shaftesbury that Locke, from then on, was to plunge into political and economic philosophy, and into public service as well as revolutionary intrigue. Locke adopted from Shaftesbury the entire classical liberal Whig outlook, and it was Shaftesbury who converted Locke into a firm and lifelong champion of religious toleration and into a libertarian exponent of self-ownership, property rights and a free market economy. It was Shaftesbury who made Locke into a libertarian and who stimulated the development of Locke's libertarian system. John Locke, in short, quickly became a Shaftesburyite, and thereby a classical liberal and libertarian.

25:57All his life, and even after Shaftesbury's death in 1683, Locke only had words of adulation for his friend and mentor. Locke's epitaph for Shaftesbury declared that the latter was a vigorous and indefatigable champion of civil and ecclesiastical liberty. The editor of the definitive edition of Locke's Two Treatises of Government justly writes that without Shaftesbury, Locke would not have been Locke at all. This truth has been hidden all too often by historians who have had an absurdly monastic horror of how political theory and philosophy often develop in the heat of political and ideological battle.

26:44Instead, many felt they had to hide this relationship in order to construct an idealized image of Locke, the pure and detached philosopher, separate from the grubby and mundane political concerns of the real world. Professor Ashcraft also shows how Locke and Shaftesbury began to build up, even consciously, a neo-leveler movement, elaborating doctrines very similar to those of the levelers. Locke's entire structure of thought in his Two Treatises of Government, written in 1681 and 1682 as a schema for justifying the forthcoming Whig Revolution against the stewards, was an elaboration and creative development of leveler doctrine.

27:34The beginnings in self-ownership or self-propriety, the deduced right to property and free exchange, the justification of government as a device to protect such rights, and the right of overturning a government that violates or becomes destructive of those ends. One of the former Leveller leaders, Major John Wildman, was even close to the Locke-Shaftesbury set during the 1680s. The deep affinity between Locke and scholastic thought has been obscured by the undeniable fact that to Locke, Shaftesbury and the Whigs, the real enemy of civil and religious liberty, the great advocate of monarchical absolutism during the late seventeenth century and into the eighteenth century, was the Catholic Church.

28:26For, by the mid-17th century, Catholicism, or popery, was identified not with the natural rites and the checks on royal despotism as of yore, but with the absolutism of Louis XIV of France, the leading absolutist state in Europe, and earlier with absolutist Spain. For the Reformation, after a century, had succeeded in taking the wraps off monarchical Tyranny in the Catholic as well as Protestant countries. Ever since the turn of the seventeenth century, indeed, the Catholic Church in France, Jansenist and Royalist in spirit, had been more a creature of royal absolutism than a check on its excesses.

29:14In fact, by the seventeenth century, the case could be made that the most prosperous country In Europe, which was also the freest, in economics, in civil liberties, in a decentralized polity, and in abstinence from imperial adventures, was Protestant Holland. Thus it was easy for the English Whigs and classical liberals to identify the absolutism, the arbitrary taxes, the controls, and the incessant wars of the stewards, with the Catholicism 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.

30:15One common confusion about Locke's systematic theory of property needs to be cleared up—Locke's theory of labor. Locke grounded his theory of natural property rights in each individual's right of self-ownership, of a propriety in his own person. What, then, establishes anyone's original right of material, or landed or natural resource property, apart from his own person? 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, 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.

31:19Private property of a material resource is established by first use. 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. For if a man justly owns material property he has settled in and worked on, he has the deduced right to exchange those property titles for the property someone else has settled in and worked on with his labor. For if someone owns property he has a right to exchange it for someone else's property, or to give that property away to a willing recipient.

32:11This chain of deduction establishes the right of free exchange and free contract, and the right of bequest, and hence the entire property rights structure of the market economy. Many historians, especially Marxists, have taken glee in claiming that John Locke is is thereby the founder of the Marxian labor theory of value, which Marx in turn acquired from Smith and especially Ricardo. But Locke's is a labor theory of property, that is, how material property justly comes into ownership by means of labor exertion or mixing. This theory has absolutely nothing to do with what determines the value or price of goods or services on the market, and therefore has nothing to do with the later labor theory of value.

33:103. Child, Lock, the Rate of Interest, and the Coinage One of the most prominent economic writers of the latter half of the 17th century in in England was the eminent Sir Josiah Child, 1630-1699. He was a wealthy merchant who was usually affiliated with the powerful East India Company, and indeed rose to be its governor, and the central concern in his economic writings was the by now traditional apologetics for the East India interests. That is, no one need worry about balance of trade from one

34:23Unwary historians were also entrapped by many of Child's fulminations against monopolies and monopolistic privileges granted by the state to cities, guilds or trading companies. Again, they assumed that Child was an advocate of laissez-faire. What they overlooked was that Child was always careful to defend as a special exception the monopoly granted to the East India Company. Child never attained the genuine laissez-faire view that even the overall balance of trade was unimportant. On the contrary, he insisted that gold and silver bullion could only be exported freely if the overall effect of such export would be a net import of specie, in other words, an overall favorable balance of trade.

35:25Unfortunately, Child's work was interpreted as solid laissez-faire doctrine in the 18th century, and particularly by the mid-18th century devotee of laissez-faire, Viscount de Gournay, who translated Childe into French as part of his program of spreading laissez-faire doctrine in France. As a result, Childe's work achieved undeserving fame in the following century. One of Josiah Childe's main deviations from free market and laissez-faire doctrine was to agitate for one of the favorite programs of the mercantilists, to push the legal maximum From the early decades of the 17th century, English mercantilists were bitter at the superior prosperity and economic growth enjoyed by the Dutch.

36:31Observing that the rate of interest was lower in Holland than in England, they chose to to leap to the causal analysis that the cause of the superior Dutch prosperity was Holland's low rate of interest, and that therefore it was the task of the English government to force the maximum rate of interest down until the interest rate was lower than in Holland. The first prominent mercantilist tract calling for lowering the interest rate was that of The Country Gentleman, Sir Thomas Culpepper, in his brief, Tracked Against the High Rate of Usury, 1621. Culpepper declared that Dutch prosperity was caused by their low rate of interest, that the English high interest rate crippled trade, and therefore that the government should force maximum interest rates down to out-compete the Dutch.

37:29Culpepper's pamphlet played a role in parliaments lowering the maximum usury rate from 10 to 8 percent. Culpepper's tract was reprinted several times and parliament duly pushed the maximum rate in later years down to 8 and then 6 percent. Each time, however, resistance increased, especially as government intervention forced down the maximum rate repeatedly. Finally, in 1668, the mercantilists tried for their most important conquest, a lowering of the maximum interest rate from 6 to 4 percent, which would presumably result in rates below the Dutch. As a propaganda accompaniment to this bill, Culpepper's son, Sir Thomas Culpepper, in 1668 reprinted his father's tract, along with one of his own, whose title says it all.

38:26A discourse showing the many advantages which will accrue to this kingdom by the abatement of usury, together with the absolute necessity of reducing interest of money to the lowest rate it bears in other countries. Culpepper Sr.'s pamphlet was published along with the influential contribution by the already by the eminent merchant and man of affairs, Josiah Child, in his first pamphlet, Brief Observations Concerning Trade and Interest of Money. Child was a prominent member of the King's Council of Trade, established in 1668, to advise him on economic matters. Child treated lowering the maximum rate of interest to 4% has virtually a panacea for all economic ills.

39:18A lower rate of interest would vivify trade and raise the price of land. It would even cure drunkenness. Josiah Child's pamphlet and his testimony before Parliament were centerpieces of the debate swirling around the proposal. Child's critics pointed out effectively that low interest in a country is the effect of of Plentiful Savings and of Prosperity, and not their Cause. Thus, Edward Waller, during the House of Commons debate, pointed out that it is with money as it is with other commodities. When they are most plentiful, then they are cheapest. So make money, savings, plentiful, and the interest will be low.

40:04Colonel Silius Titus pressed on to demonstrate that, since low interest is the consequence and not the Cause of Wealth, any maximum usury law would be counterproductive, for by outlawing currently legal loans its effect would be to make usurers call in their loans, traders would be ruined and mortgages foreclosed, gentlemen who needed to borrow would be forced to break the law. Child feebly replied to his critics that usurers would never not lend their money, that they They Were Forced to Take the Legal Maximum or Lumpit On the idea that low interest was an effect, not a cause, Child merely recited the previous times that English government had forced interest lower, from 10 to 8 to 6 percent.

40:59Why not then a step further? Child of course did not deign to take the scenario further and ask why the state did Child's critics raised another telling point. How is it that the Dutch were able to get their interest rates low purely by economic means? How come the Dutch did not need a usury statute? Child's absurd rejoinder was that the Dutch would have pushed their interest rate down It should be noted that this low interest deviation from laissez-faire accorded with Josiah Child's personal economic interest.

41:50As a leading East India merchant, Child and his colleagues were great borrowers, not lenders, and so were interested in cheap credit. Even more revealing was Child's reply to the charge of the author of Interest of Money Mistaken, that Child was trying to engross all trade into the hands of a few rich merchants who have money enough of their own to trade with, to the excluding of all young men that want it. Child replied to that shrewd thrust that on the contrary his East India Company was not in need of a low rate, since it could borrow as much money as it pleased at 4%. But that, of course, is precisely the point.

42:38Sir Josiah Child and his ilk were eager to push down the rate of interest below the free market level in order to create a shortage of credit, and thereby to ration credit to to the prime borrowers, to large firms who could afford to pay 4% or less, and away from more speculative borrowers. It was precisely because Child knew full well that a forced lowering of interest rates would indeed engross all trade into the hands of a few rich merchants, that Child and his colleagues were so eager to put this mercantilist measure into effect. When the House of Lords Committee held hearings on the interest-lowering bill during 1668 and 1669, it decided to hold testimony from members of the King's Council of Trade, of whom Josiah Child was a central figure.

43:39But another important figure was a very different member of the Council of Trade, and also a As a classical liberal, Ashley opposed the bill, and at his behest, Locke wrote his first work on economic matters, the influential, though as yet unpublished manuscript, some Some of the Consequences that are Like to Follow upon Lessening of Interest to 4%, 1668. Locke made clear in this early work his profound insight as well as thorough going commitment to a free market economy, as well as to his later structure of property rights theory.

44:29Locke displayed straight away his skill at polemics. The essay was basically a critique of child's influential work. First, Locke cut through the holistic rhetoric. Of course, he pointed out, the borrowing merchant will be happy to pay only 4% interest. But this gain to the borrower is not a gain for the national or general good, since the lender loses by the same amount. Not only would a forced lowering of interest be at best redistributive, but, Locke added, the measure would restrict the supply of savings and credit, thereby making the economy worse off. It would be better, he concluded, if the legal rate of interest were set at the natural rate, that is, the free market rate, which the present scarcity of funds makes it naturally at.

45:26In short, the best interest rate is the free market, or the natural interest rate, set by the workings of free man under natural law, that is, the rate determined by the supply of and demand for money loans at any given time. Whether or not Locke or Ashley proved decisive, the House of Lords finally killed the 4% bill in 1669. Three years later, Ashley became Chancellor of the Exchequer as Earl Shaftesbury, and the following year, Locke became Secretary to the Council for Trade and Plantations, which replaced the old Council of Trade.

46:11At the end of 1674, however, Shaftesbury was fired, the Council of Trade and Plantations John Mises was disbanded, and Locke followed his mentor into political opposition, revolutionary intrigues, and exile in Holland. John Locke finally returned to London with the overthrow of the Stuarts and the revolution of 1688, returning in triumph on the same ship as Queen Mary. Locke returned to England to find the old East India crowd up to their old tricks. was in dire financial straits, Charles II having ruined public credit with his stop of the Exchequer, and the East India people had once again introduced a bill in 1690 for the compulsory lowering of interest to 4%.

47:05At the same time, Sir Josiah Child was brought back to expand his pamphlet into a Discourse Discourse About Trade, 1690, an anonymous book reprinted three years later as A New Discourse of Trade, with Child's name blazoned on the title page. It was the New Discourse that was to make such an excessive impression on 18th century thinkers. In addition to the renewed arguments for lower interest, the Discourse and the New Discourse added more apologetics for the East India Line on trade and on monopolies. In response, John Locke's new political patron, now that Shaftesbury had died, Sir John Summers, Member of Parliament, apparently asked Locke to expand his 1668 paper to refute Childs and other proponents of the 4% bill.

48:05Locke responded the following year with his expanded book, Some Considerations of the Consequences of the Lowering of Interest and Raising the Value of Money, 1692, which brought Locke's previously unpublished arguments into public debate. Locke's work may have been influential in the 4% bill once again being killed in the House of Lords. The latter part of Locke's considerations was devoted to the great re-coinage controversy into which England had been plunged since 1690. In that year, England's basic money stock of silver coins had deteriorated so far due to erosion and coin clipping, and the contrast of these inferior hammered coins to the newer Uneroded and Unclipped Milled Coins was so great that Gresham's Law began to operate intensely.

49:05People either circulated the overvalued eroded coins and hoarded the better ones, or else passed the poor coins at their lower weight rather than at their face value. By 1690, the old hammered coins had lost approximately one-third of their worth compared to their Fair-Face Value. It was increasingly clear that the mint had to offer re-coinage into the new superior coins. But at what rate? Mercantilists, who tended to be inflationist, clamored for debasement, that is, re-coinage at the lighter weight, devaluing silver coin and increasing the supply of money. In the meanwhile, the monetary problem was aggravated by a burst of bank credit inflation created by the new Bank of England, founded in 1694 to inflate the money supply and finance the government's deficit.

50:06As the coinage problem came to a head in that same year, William Lowndes, 1652-1724, Secretary of the Treasury and the government's main monetary expert, issued a report on the amendment of silver coin in 1695, calling for accepting the extant debasement and for officially debasing the coinage by 25%, lightening the currency name by a 25% lower weight of silver. In his considerations, Locke had denounced debasement as deceitful and illusionist. What determined the real value of a coin, he declared, was the amount of silver in the coin, and not the name granted to it by the authorities.

50:57Debasement, Locke warned in his magnificently hard-money discussion, is illusory and inflationist. If coins, for example, are devalued by one-twentieth, when men go to market to buy any other commodities with their new but lighter money, they will find twenties of their new money will buy no more than nineteen would before. Debasement merely dilutes the real value, the purchasing power, of each currency unit. Threatened by the Lound's report, Locke's patron, John Summers, who had been made Lord Keeper of the Great Seal in a new Whig ministry in 1694, asked Locke to rebut Lound's position before the Privy Council.

51:48Locke published his rebuttal later in the year 1695, further considerations concerning raising the value of money. This publication was so well received that it went into three editions within a year. Locke superbly put his finger on the supposed function of the mint, to maintain the currency as purely a definition or standard of weight of silver. Any debasement, any change of standards, would be as arbitrary, fraudulent and unjust as the government's changing the definition of a foot or a yard. Not put it dramatically, one may as rationally hope to lengthen a foot by dividing it into 15 parts instead of 12 and calling them inches.

52:39Furthermore, government, the supported guarantor of contracts, thereby leads in contract breaking. The reason why it should not be changed is this, because the public authority is guarantee for the performance of all legal contracts, but men are absolved from the performance of their legal contracts if the quantity of silver under settled and legal denominations be altered. The landlord here and creditor are each defrauded of 20% of what they contracted for and is their due. One of Locke's opponents both on coinage and on interest was the prominent builder, Fire Insurance Magnet and Land Bank Projector, Nicholas Barbone, 1637-1698.

53:32Barbone, son of the fanatic London Anabaptist preacher and leather merchant and member of parliament, praise God Barbone, studied medicine and became an M.D. in Holland, moving to London and going into business in the early 1660s. In the same year as Child's discourse about trade, Barbone, who had just been elected to parliament, published the similarly titled Discourse of Trade, 1690, again time to push for the 4% interest bill in parliament. An inveterate debtor and projector, Barbone, of course, would have liked to push down his interest costs. In 1696, Barbone returned to the lists in a bitter attack on Locke's further considerations on the coinage.

54:26Arguing against Locke's market commodity or metalist view of money, Barbone, urging devaluation of silver, countered with the nominalist and statist view that money is not the market commodity but whatever government says it is. Barbone, Money is the instrument and measure of commerce, and not silver. It is the instrument of commerce from the authority of that government where it is coined. Fortunately, Locke's view triumphed, and the recointage was decided and carried out in 1696 on Lockean lines. The integrity of the weight of the silver denomination of currency was preserved.

55:12In the same year, Locke became the dominant commissioner of the newly constituted Board of Trade. Locke was appointed by his champion, Sir John Summers, who had become chief minister from 1697 to 1700. When the Summers regime fell in 1700, Locke was ousted from the Board of Trade to retire until his death four years later. The Lockean recoinage was assisted by Locke's old friend, the great physicist Sir Isaac Newton, 1642-1727, who, while still a professor of mathematics at Cambridge from 1669 on, also became Warden of the Mint in 1696, and rose to Master of the Mint three years later, continuing Barbone and Locke set the trend for two contrasting strands in 18th century monetary thought.

56:21Locke, the Protestant scholastic, was essentially in the hard-money, metalist, anti-inflationist tradition of the scholastics. Barbone, on the other hand, helped set the tone for the inflationist schemers and projectors of the next century.