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Michael Daniel 10/6/2006 Core A
There are no meaningful connections between John Locke’s epistemological writings and his economic writings. An Essay Concerning Human Understanding (hereafter referred to as An Essay) is his major epistemological work and Some Considerations on the Consequences of the Lowering of Interest, and Raising the Value of Money (hereafter referred to as Some Considerations) is his major economic work. These two works were written for different purposes, in different styles and to different audiences. They do not share the same logic, structure or style. The only quality that the two works share is that they were both groundbreaking documents in their respective fields. All economists are heavily influenced by their current economic realities, so Locke’s economic ideas were heavily influenced by the economic realities of his time.1 It is important to understand the historical backdrop of Some Considerations before we can provide any analysis of it. John Locke lived in England from 1632 – 1704. His parents were staunch Puritans and could be considered lesser gentry. He studied at Westminster and Christ Church, Oxford. He is hailed as the co-founder of the Royal Society, along with Sir Isaac Newton.2 The Royal Society was the academic organization that drove the enlightenment in 17th century England. He was accepted into the household of The Earl of Shaftesbury as Shaftesbury’s personal doctor and clerk. Shaftesbury founded the Whig party.3 Locke became involved in politics and civil service by working for Shaftesbury, and as a result,
Screpanti, Ernesto and Zamagani, Stefano. An Outline of the History of Economic Thought 2nd ed. Oxford, UK. Oxford University Press, 2005. 1-15 2 Pyle, Andrew. “John Locke.” The dictionary of Seventeenth-Century British Philosophers, Volume 2. Bristol, UK: Thoemmes Press, 2000. 532 3 Kors, Alan. “John Locke.” Encyclopedia of the Enlightenment. Oxford, UK: Oxford University Press, 2003
he worked as a civil servant for most of his life. He was appointed to the position of secretary to the Council of Trade and Foreign Relations and he was instrumental in getting the Licensing Act passed, which is similar to America’s First Amendment. He wrote the first Constitution for the Carolinas and his political writings inspired the American and French revolutions. Locke traveled in both academic and political circles. This is important because it is the underlying reason why his epistemology does not relate to his economics. It was in his capacity as the Earl of Shaftesbury’s secretary that Locke was first exposed to Josiah Child’s work. Child was an economist who wrote a book titled Brief Observations Concerning Trade and Interest of Money. Child’s tract compared Holland’s economy to England’s economy in order to argue for a government-mandated maximum legal interest rate in England of four percent, in 1692, Locke would publish Some Considerations as a letter to Parliament to provide a counterpoint to Childs tract.4 In it he would argue that the interest rate should be set at six percent instead of lowering it to four percent because the ‘natural’ interest rate for credit was around six percent at the time. While Some Considerations was groundbreaking in many respects, the work failed to sway Parliament and the interest rate was set to four percent.5 The inspiration and intended audience for Brief Observations was clearly different from that of An Essay, which was Locke’s epistemological work. An Essay was inspired by a conversation at a cocktail party with academics that centered on the foundations of natural and revealed religion.6 Locke’s epistemological work was written for academics
Hutchison, Terence. Before Adam Smith. Cambridge, Mass: Blackwell, 1988. 58-64 Eatwell, John and Milgate, Murray and Peter, Newman. “John Locke.” The New Palgrave: A Dictionary of Economics. London, UK: Macmillan Press, 1988. 229-230 6 Higgs, Henry. Palgrave’s Dictionary of Political Economy. “John Locke.” New York, NY: Sentry Press, 1963. 631
but his economic work was written for politicians. I believe that this accounts for much of the disconnect between the two works. The style and tone for ‘Brief Observations’ is casual and somewhat unstructured. In the introduction to the work, Locke wrote, “I must desire you to remember, that you must be answerable to the world for the style, which is such as a man writes carelessly to his friend, when he seeks truth, not ornament…”7 Locke wrote in this manner on purpose so that the work could compete with Child’s tract, which was written in a similar manner. The style and tone for An Essay was far more structured and formal than that of Brief Observations. An Essay began with two epistles followed by a 27 page outline. Locke made it clear that it was not intended for the layman or the politician. I will now give a general description of the contents of these two works. I will begin with a more in-depth description of Some Considerations and the economic realities surrounding it. Then I will describe An Essay in greater detail. I will then focus on Locke’s descriptions of gold in both works in order to show that Locke’s epistemological treatment of gold is not related to his economic treatment of gold. Some Considerations is seen by economists as a transitional half step between mercantilism and Adam Smith’s Wealth of Nations. Mercantilism measured the wealth of a country by how much gold it had in circulation as coinage. Locke did not break with that tenant of mercantilism but he did discover such foundational concepts for economics as supply, demand and market equilibrium.8 He made the breakthrough argument that rent is usually a function of interest rates.9
Locke, John. The Works of John Locke vol 5. London, UK: Scientia Verlag Aalen, 1963. pg. 3 “John Locke.” Wikipedia. Oct 12, 2006 http://en.wikipedia.org/wiki/John_Locke 9 Locke, John. The Works of John Locke vol 5. London, UK: Scientia Verlag Aalen, 1963. 38
Remember that in Some Considerations Locke argued that the interest rate should be fixed at six percent. It is important to note that central banking had not been invented yet which meant that this law affected each individual lender. Locke argued that if the legal maximum interest rate were fixed at four percent the law would be ignored by skillful bankers who could get away with charging more than four percent without getting into trouble.10 The less skillful private lenders would be less inclined to loan money, since they could receive only two thirds of what they used to receive before the law went into effect. Locke argued that this would cause the bankruptcy of farmers, orphans, widows, merchants and the tradesmen who ran the factories. Foreigners would run the banks and the markets would collapse. The English trade deficit would grow, causing England to grow poor because the country’s gold would be sent overseas to pay for the balance-of-the-trade deficit. The two most important contributions to economics in Some Considerations were the ideas of equilibrium and that the speed at which currency trades hands is an important consideration when measuring wealth. He wrote that as money circulates faster it creates more wealth by creating more commodities with less money. “The very same shilling may, at one time, pay twenty men in twenty days: at another, rest in the same hands one hundred days together.”11 He also created the concept of a ‘natural rate,’ which is the price of a good when both supply and demand are taken into account. On a modern supply-demand curve chart this is where supply and demand curves intersect. Today, Lockes ‘natural rate’ is known as ‘equilibrium.’
Eatwell, John and Milgate, Murray and Peter, Newman. “John Locke.” The New Palgrave: A Dictionary of Economics. London, UK: Macmillan Press, 1988. 229 11 Locke, John. The Works of John Locke vol 5. London, UK: Scientia Verlag Aalen, 1963. pg 23
While both works were groundbreaking in their respective fields, Some Considerations is not as important as An Essay.12 In An Essay, Locke explored the limits of human understanding. He wrote, “This, therefore, being my purpose to inquire into the original, certainty, and extent of human knowledge, together with the grounds and degrees of belief, opinion, and assent.”13 An Essay refuted the commonly held belief that we have universal knowledge from birth. Locke argued that if something is imprinted upon the mind from birth then even children and idiots know it. Children, idiots and even people of greater intelligence can know only things from their experiences, therefore, only experience can give knowledge. When We are born our minds are tabula rasa, or blank slates. Locke then argued that all ideas are products of experience. “Let us then suppose the mind to be, as we say, white paper, void of all characters, without any ideas: - How comes it to be furnished?... To this I answer, in one word, from experience.”14 Ideas come from two kinds of experience: sensation and reflection. Sensation is when we receive information through our five senses. Reflection is when we form our own ideas from experience. Ideas can be broken down into the categories of simple ideas and complex ideas. Simple ideas include things like hardness, coldness, whiteness, etc. We cannot invent new simple ideas, we can experience them only. Complex ideas are made up of simple ideas. We can associate a round shape, a certain hardness and the color red with a red ball, for example. Round, hard and red are all simple ideas out of
Hutchison, Terence. Before Adam Smith. Cambridge, Mass: Blackwell, 1988. 72
Locke, John, Nidditch, Peter, ed. An Essay Concerning Human Understanding. Oxford, UK: Clarendon Press 1975. 43 14 IBID, 105
which we create the complex idea of a red ball. Modes are a type of complex idea that relates to morals and mathematics. While we are not born with knowledge, we are born with certain mental abilities that make knowledge possible. These abilities include the ability to combine simple ideas to create complex ideas as well as the ability to relate simple or complex ideas without combining them, which lets us create associations. We also can produce new ideas from the abstractions of complex ideas and we have the ability to store ideas in our memory. This was groundbreaking because it was the earliest attempt to apply psychology to epistemology. Locke defines “knowledge” as, “The perception of the connection and agreement or disagreement and repugnancy of any of our ideas.”15 Locke argues that our knowledge of god and self is reliable, which is reminiscent of Descartes. Our knowledge of objects is unreliable because we can never know all of the essential characteristics of all objects and therefore cannot compare an object to all other objects. If we could do that then we would have knowledge of the object in question. We can say that we probably know an object but we cannot say for certain that we know it. Locke’s description of knowledge does not hold up against the justified-truebelief theory of knowledge (JTB). We can justify that we know something because we experience it and process it mentally into an idea. We generally believe what we sense. Locke’s argument lacks truth because objects are more than just ideas. There is no meaningful relationship between An Essay and Some Considerations. A meaningful relationship between the two works would show that he used the same
Locke, John, Nidditch, Peter, ed. An Essay Concerning Human Understanding. Oxford, UK: Clarendon Press 1975. pg 525
logic or made similar points in both works. A meaningful relationship would exist if he used one work to justify the other. The fact that the two works are by the same author or that in both works he uses numbered lists in order to make his points does not constitute a meaningful relationship. These two essays do not build upon each other at all. In order to show clearly the contrast between these two works I will analyze Locke’s treatment of gold. In An Essay he commonly used gold as an example of an object to describe. Gold itself was not important in that work. He could have described anything but gold happened to be one of his favorite examples. Some Considerations describes what we do with gold rather than how we know that something is gold. In An Essay gold is identifiable by observation alone. Even with observation, however, Locke shows that we can not truly know gold because we cannot know all of the essential characteristics of gold. For, though in the substance of gold one satisfies himself with colour and weight, yet another thinks solubility in aqua regia as necessary to be joined with that colour in his idea of gold, as any one does its fusibility; solubility in aqua regia being a quality as constantly joined with its colour and weight as fusibility or any other; others put into it ductility or fixedness, &c., as they have been taught by tradition or experience. Who of all these has established the right signification of the word, gold?16 In Some Considerations, Locke describes gold as the thing that gives value to currency. He does not believe in paper money at all. To Locke, the wealth of a nation is defined by how much gold it has in comparison to its neighbors. In this he equates gold
Locke, John, Nidditch, Peter, ed. An Essay Concerning Human Understanding. Oxford, UK: Clarendon Press 1975. 483
with wealth. “Riches do not consist in having more gold and silver, but in having more in proportion than the rest of the world…”17 Any comparison between An Essay and Some Considerations will clearly show that there are no meaningful connections between the two. An Essay is an academic dissertation. Some Considerations is more of an editorial. One work will neither support nor refute the other work. The most striking example of this lack of support between the two works is gold. Gold is discussed in each book but the treatment of the subject is so different in each book that we cannot connect his epistemological description of the substance with his economic description of it. This is not to say that his economics are not sound. He simply did not make any epistemological arguments in his economics, nor did he provide economic analysis in his epistemology.
1. Hutchison, Terence. Before Adam Smith. Cambridge, Mass: Blackwell, 1988
Locke, John. The Works of John Locke vol 5. London, UK: Scientia Verlag Aalen, 1963. 13
Screpanti, Ernesto and Zamagani, Stefano. An Outline of the History of Economic
Thought 2nd ed. Oxford, UK. Oxford University Press, 2005 3. 1963 4. Kors, Alan. “John Locke.” Encyclopedia of the Enlightenment. Oxford, UK: Locke, John. The Works of John Locke vol 5. London, UK: Scientia Verlag Aalen,
Oxford University Press, 2003 5. Eatwell, John and Milgate, Murray and Peter, Newman. “John Locke.” The New
Palgrave: A Dictionary of Economics. London, UK: Macmillan Press, 1988 6. Higgs, Henry. Palgrave’s Dictionary of Political Economy. “John Locke.” New
York, NY: Sentry Press, 1963 7. Pyle, Andrew. “John Locke.” The dictionary of Seventeenth-Century British
Philosophers, Volume 2. Bristol, UK: Thoemmes Press, 2000 8. Stanford University. “Stanford Encyclopedia of Philosophy.” 2006 John Locke.
Stanford University Sep 26, 2001 http://plato.stanford.edu/entries/locke/ 9. Oregon State University. 2006 “An Essay Concerning Human Understanding”
Oct 6, 2006 http://oregonstate.edu/instruct/phl302/texts/locke/locke1/ Essay_contents.html 10. Smith, Adam and Cannan, Edwin, ed. An Inquiry Into the Nature and Causes of
the Wealth of Nations. New York, NY: Random House, 1994. 27 11. Sober, Elliott. Core Questions in Philosophy. Upper Saddle River, NJ: Pearson,
Prentice Hall, 2005. 154 12. Locke, John, Nidditch, Peter, ed. An Essay Concerning Human Understanding.
Oxford, UK: Clarendon Press 1975
“John Locke.” Wikipedia. Oct 12, 2006 http://en.wikipedia.org/wiki/John_Locke
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