Several Papers Relating to Money, Interest and Trade

Locke on money: why a government cannot make a nation richer by renaming its coins.

English, the original language, and your language

First published: 1696(aged 64)
Original language: English

Overview

The silver coins in English pockets had been clipped at the edges until, by 1695, a shilling often held far less silver than its face promised. Sound coin was melted and sent abroad, where silver fetched more, and forgeries filled the gap. That September William Lowndes, Secretary to the Treasury, proposed to recoin the money and to raise the face value of silver by a quarter, so that the new coins would match what the worn ones were actually worth. Ministers asked Locke for his opinion, and the last of these three tracts, printed in December 1695, is his answer to Lowndes. A pound, he argues, is the name of a fixed weight of silver. Call a lighter coin by the old name and nobody is richer; every landlord and creditor who is owed a pound receives a fifth less silver than was agreed, by act of the state. The money must be recoined at the old weight. The first tract, a letter of 1691 to a member of Parliament, makes a parallel case about interest. A bill was before the Commons to cut the legal rate from six per cent to four. Locke reused a paper he had drafted in 1668 against the merchant Sir Josiah Child, and argued that the price of borrowed money is set by its scarcity like any other price, and that lenders and borrowers will find ways round a ceiling fixed by law. He put his name to the three tracts when they were issued together in 1696. Parliament recoined at the old standard that year. Coin ran short while the Mint caught up, and people holding clipped money bore the loss. Silver went on leaving the country, and by 1717 England was on a gold standard.

Key concepts

Why does Locke call money both a counter and a pledge?

Because it does two different things. As a counter it keeps score: its stamp and name let people reckon prices and debts in common units. As a pledge it gives security: whoever accepts it holds something that will buy an equal value later. Locke says the first job is done by the denomination and the second by the silver, and paper or a mere name can only do the first.

What is the “intrinsic value” of money?

For Locke it is the worth that common consent has given silver as the thing all goods are exchanged for. It does not mean that silver is useful in itself. Since the agreement attaches to the metal, the intrinsic value of a coin is just the quantity of silver in it: an ounce is worth an ounce, whatever is stamped on it.

What does “raising the coin” mean?

It means giving a coin a higher face value without putting more silver in it, or keeping the name and taking silver out. A crown that used to pass for sixty pence is declared to pass for seventy-five. Locke’s point is that only the denomination has been raised. Prices follow the silver, so the same goods soon cost more of the new pence and nobody has gained anything real.

What is the natural rate of interest?

It is the rate that money would fetch if lenders and borrowers were left to bargain, given how scarce money currently is and how much trade and debt call for it. Locke calls it natural use and distinguishes it from the legal rate, which is the ceiling a statute sets. His advice is to keep the legal rate close to the natural one, since a wide gap only drives lending underground.

What does Locke mean by “vent”?

Vent is how readily a commodity sells: how much of it buyers take off the market in a given time. Locke’s rule is that the price of anything depends on its quantity in proportion to its vent. More goods with the same demand means lower prices; the same goods with more buyers means higher. He applies the rule to wheat, to land and to money itself.

Themes of the book

What this book returns to, gathered into themes and ordered by how much of the text each one occupies.

Silver, Not Names, Pays Debts

Is a pound whatever the government says it is, or a fixed quantity of silver that the stamp only certifies? Every contract in the country depends on which of the two is true.

Money, for Locke, does two jobs: it counts, by its stamp and name, and it pledges, by the silver it contains. Silver was chosen because it lasts, is scarce and is hard to counterfeit, and its value in exchange is its quantity. The mint’s stamp is a public voucher for the weight. Hence his answer to Lowndes: calling a lighter coin a crown raises nothing except the name, as dividing a foot into fifteen parts makes nothing longer. What changes is who is paid. Every creditor and landlord receives less silver than his contract promised, and the state has done by law what the clippers did by stealth.

coinage
money
silver
debasement
intrinsic value
contracts
justice
measurement
law
value
monetary policy
bullion

Enter a dialogue

The Price of Borrowed Money

Can Parliament make borrowing cheap by declaring a lower rate of interest? Locke treats interest as a price, and a price is set by how much there is and how many want it.

Interest, in the letter of 1691, is the hire of money, as rent is the hire of land, and the scarcity of money in proportion to trade and debts fixes it. A law setting four per cent where the natural rate is six will not make money plentiful. Lenders will hoard, or lend through bankers who know how to get round the statute, and the losers will be widows, orphans and others who can take only what the law allows. A country grows rich, Locke adds, by selling more than it buys. A law against exporting coin he calls a hedge to keep in the cuckoo.

interest rates
interest
lending
supply and demand
trade
debt
money supply
rent
prices
credit
international trade
national wealth

Enter a dialogue

Within this work

passages held: 315
distinct concepts: 265
by passages held, corpus-wide: #235

What this book thinks together

The wheel takes this book’s leading concepts and shows how often they come up together. The wider the band between two, the more of its passages speak of both. Among them, most often together: “coinage” and “money”.

Concept co-occurrence, strongest first 8 concepts, joined by 24 pairings. 80 pairings reach beyond these concepts and are not drawn.
Concept	Paired concept	Shared passages
coinage	money	110
money	value	40
bullion	money	33
bullion	coinage	28
coinage	silver	27
money	trade	27
coinage	monetary policy	24
money	silver	24
monetary policy	money	23
coinage	value	22
coinage	trade	16
interest rates	trade	16
silver	value	14
monetary policy	value	8
bullion	silver	7
monetary policy	silver	7
bullion	monetary policy	6
bullion	value	6
bullion	trade	5
interest rates	money	4
monetary policy	trade	4
silver	trade	2
trade	value	2
interest rates	monetary policy	1

Works held

The author's work in order, this book marked in place. Your-language title first, the original beneath it where the two differ; side chips show which full texts are held.

1689 A Letter Concerning Toleration (Epistola de Tolerantia)
The one statement of his case for religious freedom that Locke made briefly and to a friend. Everything else he printed on the subject defends this text against one of its critics, Jonas Proast.
EN
1689 An Essay Concerning Human Understanding
The book Locke's reputation rests on, and the one major work of 1689 that he signed. His quarrel with Bishop Stillingfleet, the unfinished Conduct of the Understanding and the letters to William Molyneux all grow out of it.
EN
1689 Two Treatises of Government
Two parts of a longer manuscript whose middle was lost before printing, as Locke's preface says. The book is his political theory, and it shares a year and a purpose with A Letter Concerning Toleration: each sets a limit on what a ruler may do.
EN
1690 Further Letters Concerning Toleration
A sequel in three parts to A Letter Concerning Toleration: Locke's second and third letters and the fragment of a fourth, each a reply to the Oxford chaplain Jonas Proast. The third is where he tests his case hardest.
EN
1693 Some Thoughts Concerning Education
Written for the household of his friend Edward Clarke and enlarged by Locke through several editions. It is his book of practical advice on raising a child, and it applies the Essay's view that the mind is formed by what it meets.
EN
1695 The Reasonableness of Christianity
His main work on religion, and the opening of the study of Scripture that occupied his last years. He defended it twice against John Edwards, a Cambridge Calvinist, and kept his name off all three books while he lived.
EN
1696 Several Papers Relating to Money, Interest and Trade you are here EN
1697 Letters to the Bishop of Worcester
Locke's own commentary on the Essay, written under attack: three replies to Edward Stillingfleet, issued as separate pamphlets between 1697 and 1699, with a short answer to a second critic, Thomas Burnet, Master of the Charterhouse.
EN
1706 Of the Conduct of the Understanding
An unfinished draft, printed from Locke's papers two years after his death. It is the practical companion to the Essay and overlaps with his advice on education.
EN
1706 Posthumous Works
From the volume of unpublished papers that Locke's executors issued in 1706: a critique of Malebranche from the 1690s and a short discourse on miracles from 1702. Both extend arguments begun in the Essay.
EN
1708 Some Familiar Letters between Mr. Locke and Several of His Friends
Letters to the Molyneux brothers of Dublin — Locke's side of the correspondence — taken from a volume his publishers issued in 1708. It is the closest view of him at work on the later editions of the Essay.
EN
1720 A Collection of Several Pieces
The Carolina constitution of 1669 predates the Two Treatises by ten years or more, and the two are often set against each other. Pierre Des Maizeaux published it in 1720 together with shorter pieces left out of the collected works.
EN

— or open another of their works