Locke’s Account of Money and its Historical Context by Graham Hubbs
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I closed my last post to the API blog by suggesting that an historical study of the social ontology of money should pay attention to the contexts in which theoreticians of money write. Think about the present day. It should be no surprise in the wake of the Financial Crisis of 2008, with the rise of cryptocurrencies, and in the midst of increasing wealth disparity that we see theoreticians wondering anew about the nature of money. In this post, I’ll discuss the case of John Locke’s monetary recommendations during the Coinage Crisis of the 1690s. I will say at the outset that much of what I know about this comes from Stefan Eich’s excellent “John Locke and the Politics of Monetary Depoliticization.” If you have any interest in these topics, you would do well to read Eich’s work.
Let’s start with Locke himself. He lived from 1632 until 1704. This was a time of great political upheaval in England, of which Locke found himself in the crosshairs due in no small part to his association with Anthony Ashley Cooper, one of the founding Whigs. The Whigs advocated for a strong parliament, in opposition to the conservative Tories, who espoused traditional views of absolute monarchy. Locke’s First Treatise of Government argues forcefully against the Tory position, and his Second Treatise of Government lays out what Locke takes to be the basis of all legitimate government. The legacy of the Second Treatise is fascinating. Today it is commonly depicted as the foundational text in modern liberalism (in the British sense of the term) and libertarianism, but historians such as C. B. Macpherson, Duncan Bell, and Tim Stanton have shown that it only gained this status in the 20th century and that Locke was frequently dismissed in the 18th and 19th centuries as a shoddy political thinker. (In his own day, Locke’s international reputation was as an acute epistemologist, metaphysician, and theorist of the mind, which stemmed from his Essay Concerning Human Understanding.) To appreciate the complexities of Locke’s thoughts on money, however, we can set aside all of this history as well as many of the Second Treatise’s details and just focus on the basic arc of its argument.
Locke starts with the idea that property rights are a part of natural law. Unlike Hobbes, who thinks that property rights can only exist when there is a government with sufficient power to enforce them, Locke thinks that these rights exist prior to any government. This leads him to say that the central point of government is to protect these (natural) rights, and if a government should fail to do so, then the people who are under that government’s rule are entitled—or even obligated—to rebel. Like so many theorists working in this tradition, Locke articulates his argument with an etiology. First, there was the state of nature, which contains natural rights to property; it was nice enough, but sometimes people killed one another over property rights disputes; so, to make things more commodious, they wrote down laws and empowered a neutral arbiter that would allow them to avoid the violence that self-interest can produce in these disputes. In between the state of nature and the creation of civil law and government came the invention of money. Locke gives the orthodox catallactic account of money’s creation, viz., that it was invented to make trade easier. On the account in the Second Treatise, property, trade, and money all come about before government, and the point of government is to protect the (natural) rights involved in possessing and using property and money.
Locke is writing nearly a century before Adam Smith and thus before the science of economics was off the ground. No one had yet begun articulating a system of natural economic laws, so Locke does not say that the point of government is to enforce such laws. But he comes close. On this picture, the government’s role with respect to money is to preserve its natural condition and function. Locke would not be the last to advance such a perspective. As John Smithin notes, Milton Friedman’s monetarism was also based on the idea that monetary policy should be set so that money functions as it is supposed to on the orthodox, catallactic view.
The connection between Locke and Friedman here runs deeper. When Friedman argues that monetary policy should be set so money functions as if it were the sort of money supposed by the orthodox theory—i.e., a precious metal commodity, such as gold—he tacitly admits that money does not function this way all on its own, and that, moreover, it is through policy and law that we can get money to behave as we want. Locke had the same realization in 1695 when he argued for a full recoinage, without devaluation, of the English pound. In the 1690s, England was in the midst of a coinage crisis. People clipped coins, lowering the amount of silver in them, to meet the demands of commerce. When taxes were collected, many of the coins that the English government gathered were thus clipped. This was a problem for England, which was engaged in the Nine Years War and was spending up to eighty percent of its public revenue on the war. Soldiers had to be provisioned using unclipped coins. The English Parliament, newly empowered on the heels of the Glorious Revolution, seemed to have only two choices to deal with the proliferation of clipped coins: either devalue the pound, or call all coins in to be recoined at the existing standard.
Locke argued for the latter option. As Eich emphasizes, Locke saw preserving the existing metallic standard as a way of maintaining the public trust. To devalue the pound would be to legitimate the unscrupulous actions of the coin-clippers. Moreover, a devaluation would, Locke argues, defraud those who had recently lent their money to the revolutionary effort Locke had supported. Supporters who had lent sound money to the government would be given money with less precious metal when their loans were returned, a situation that Locke found intolerable. To maintain the public trust, Locke argued that the government should not only engage in a total recoinage but also fix the required metallic content of the pound forevermore, treating the standard as if it were a standard of nature, not unlike a physical law.
The key concept for Locke here is that of “intrinsick value.” In the Second Treatise, Locke says that money gets its value “by mutual consent,” which makes it sound as if money’s value is conventional, not natural. Recall, however, that Locke says money is part of our natural, pre-political way of life—he depicts it as an outgrowth of what Smith would later call our natural propensity to truck and barter. For Locke, the key distinction is not between the natural and the conventional/consensual, for all of these are on one side in opposition with the political. (For a contrasting view, think of Hobbes, who argues that there cannot be any sort of consent outside of the rule of law, i.e., the political.) “Intrinsick value” can thus be established conventionally, and so through consent money can be given a value with, as he puts it in a 1668 essay on interest, “the same effect as if it were natural.”
The way he sets up the relation between government and nature, though, allows Locke to go a step further on this “intrinsick value,” which he does. The government gets its right to govern from the people, through their consent. If the people can consent to money having value “as if” it were natural, and if they can consent to being governed to protect their property rights, then the government in turn can decree that money has a certain “intrinsick value,” so long as in doing so it protects the property rights of the people and they thus consent to the decree. When Locke argues for recoinage at the existing metallic purity standard, this is exactly what he is arguing for—a decree that will receive the consent of the people (and again, he specifically has lenders in mind) because it will protect their right against being defrauded. As Eich notes, this line of thought allows Locke to define “intrinsick value” as something that can be established, paradoxically, by fiat.
Eich calls Locke’s proposal here an engagement in the “politics of depoliticization.” By this phrase, Eich means to signal Locke’s awareness that money is not a commodity and that its value is established politically, by governmental decree, e.g., the 1696 proclamation that initiated the Great Recoinage. (Locke’s argument won the day.) That’s the “politics” part. The “depoliticization” part is Locke’s insistence that once the value of money is set, it cannot change, but rather needs to be treated “as if” it were natural, determined by an immutable law of nature. Only so could trust be preserved, and writing on the heels of the Glorious Revolution, the precursors of which sent him into exile, Locke was keenly aware how fragile political trust could be.
This provides a fine example of why historical studies of the social ontology of money should pay attention to the contexts in which theoreticians of money write. Without context, Locke’s views can seem dubious or even flatly absurd. He gives what David Graeber calls a “Myth of Barter” story of money’s origins, which is dubious (at best). He says that “intrinsick value” can be established by fiat, which seems absurd. Considered in an historical vacuum, it may be hard to understand why we should take these views philosophically seriously. What the comparison to Friedman shows is that the politics of depoliticization, the insistence on treating what is obviously political as if it were natural, is a recurring theme in monetary theory. At the risk of being redundant, this politics is a political matter, a choice on the part of a collective in pursuit of some end. The history of Locke’s role in the Coinage Crisis also can help us see how contingent economic arrangements can come to appear natural and immutable. For Locke and the metallic value of money, this is by design—Locke’s goal is to have us all willfully forget the contingent nature of monetary value, treating it as if it were natural, in the name of stability and trust.
This brings us back to Nietzsche. One of the many points he makes in the second essay of The Genealogy of Morals is that forgetting is often deliberate and purposive. Nietzsche’s genealogy of the concept of guilt shows how this purpose can slowly emerge over time. The deliberate forgetting that Locke’s view of “intrinsick value” demanded of his contemporaries was, by contrast, self-conscious and immediate. All the same, it created a false account of money’s ontology (viz., that it is as the orthodox, catallactic account supposes it to be), and when this false account was collectively taken to be true, it guided not only theorizing about money but also lawmaking and policy decisions. The illusion of the naturalness of “intrinsick value” lingered into the 20th century. On the theory side, it began being unravelled by thinkers such as Georg Friedrich Knapp, Alfred Mitchell-Innes, and John Maynard Keynes. Bretton Woods was its undoing on the side of monetary policy, but its ghost continues to linger in fiscal policy whenever a state with a sovereign currency acts as if it must raise funds from the private sphere. This way of thinking is beholden to the picture of The Second Treatise, where money is depicted as a pre-political creation, something a government has to go out and get like any other person or corporation must do. Locke seems to have known that this picture is part of a story, something an author tells, with a purpose—in Locke’s case, the purpose of the story was to create a sense of trust that could be provided by the immutable regularity of nature.