Philosophers and Economists

Philosophers teach Locke as an early libertarian. What stands out for us is that he is attempting to show that there are natural property rights, that is, property rights prior to the state and its laws. If so, they would put a limit on the state’s ability to impose taxes (among other things) much as other human rights prevent the state from engaging in torture or curtailing free speech.

So philosophers tend to pay a lot of attention to the labor theory of property. And we spend a lot of time on some of the problems that came up in our discussion. For example, there is Jesse’s point that if labor transfers property rights from common owners to private owners then it should also transfer property rights from one private owner to another (which it obviously does not). There are also questions about Locke’s so-called provisos against property rights that lead to spoilage or that do not leave “enough and as good” for others. Those seem to be at odds with the original idea that taking the product of someone’s labor is equivalent to enslaving that person. If I worked hard on my field, the fact that you can’t find a field that is equally good is neither here nor there: if you take my field, you take my labor and treat me as your slave.

I’m not saying that these problems and others like them are insoluble. Maybe they are and maybe they aren’t. I’m just saying that these are the things you talk about in a philosophy class.

It has one big advantage: you can pretty much stop reading around §30.

And it has one big disadvantage, at least, if you want to understand Locke: Locke did not stop at §30. He went all the way to §51. Why did he write 21 superfluous sections? “Good question, but we’re out of time. Check the syllabus for tomorrow’s readings ….”

This is where Prof. Brown comes in. She sees Locke as noticing a distinction that economists draw among three kinds of goods:

1. consumption goods
2. productive inputs
3. money

The distinction plays out in Locke’s application of the rule against spoilage. Locke thinks you cannot have property rights in consumption goods that will literally spoil, such that no one else can consume them. He thinks that you cannot have property rights in productive goods that will not be put to productive use even though something like, say, unused land does not literally spoil. And he thinks that the genius of money is that it allows for the accumulation of a lot of excess, unused wealth without violating the rule against spoilage and waste. Gold and silver cannot literally spoil and they have no other productive use. So you can pile that stuff up as high as you like without running afoul of the rules.

(When you look at my outline, you can see that I divided the material between §§31–51 into three parts, corresponding to three different kinds of society: hunter-gatherer, agricultural, and commercial. Here is how I see the correspondence between my scheme and hers. My hunter-gatherers have only consumption goods. My agricultural societies develop a productive good: land. And my commercial societies use money to facilitate trade.)

We had a lot of discussion about how sharp the distinctions among those kinds of goods really are, especially the distinction between productive goods and money. Martin, Will, and Cyrus were the most skeptical, if memory serves. For instance, Martin noted that the production of goods would shrink if someone hoarded all the money, making exchanges more complicated than direct barter difficult. Doesn’t that make money a productive input? Prof. Brown said the answer turns on a distinction between money as a medium of exchange and money as a store of value.

So what is my new and improved way of understanding Locke? I tend to see him now as mostly concerned with showing that private property is consistent with equality, believe it or not. Roughly, God gave the earth to everyone in common to sustain their lives at some standard of living that Locke does not specify. So everyone has an equal right to enough of the earth’s resources to sustain their lives at that standard of living. Private property is compatible with this right because, in each of the three kinds of society Locke describes, the institution of private property leaves people with enough (or more). Labor does double duty for him in that it is the means by which individuals acquire property and also what ensures the legitimacy of the institution of property because it expands the resources available to everyone. In other words, the end of the chapter is more important than the beginning.

Is he a utilitarian?

Ella asked a darn good question: is Locke a utilitarian? The answer is: “yes and no.” Here’s what I mean.

On the one hand, Locke has a theory of individual property rights. Individuals mix their labor with stuff so taking the stuff they labor on is like taking the labor. That’s slavery and that’s a no no. Would it matter if you took the stuff for the sake of promoting the greatest overall good? I can’t see why. There is a longstanding conflict between individual rights and the utilitarian principle; this would be just another instance of that.

On the other hand, Locke thinks that we are governed by a law of nature whose aim is to promote the welfare of all humanity. Private property serves this aim by making human beings more productive, thereby creating more resources for everyone. Here, it seems, the fundamental goal is to promote the good of humanity as a whole. That is pretty close to straight utilitarianism.

I suspect Locke thought the two amounted to the same thing and that respecting individual rights would promote the good of humanity. He gives no sign of having confronted the possible conflict between these two strands of his theory. That does not stop us from doing so and asking which theory is the one that Locke should have supported, either on grounds of consistency or for some other reason. All I mean is that you should not necessarily expect to find a sharp answer to Ella’s question in Locke’s text.

More on money

Christine Desan’s The Making of Money: coin, currency, and the coming of capitalism sounds fascinating (Desan 2015). Here’s a summary.

Money travels the modern world in disguise. It looks like a convention of human exchange - a commodity like gold or a medium like language. But its history reveals that money is a very different matter. It is an institution engineered by political communities to mark and mobilize resources. As societies change the way they create money, they change the market itself - along with the rules that structure it, the politics and ideas that shape it, and the benefits that flow from it.

One particularly dramatic transformation in money's design brought capitalism to England. For centuries, the English government monopolized money's creation. The Crown sold people coin for a fee in exchange for silver and gold. 'Commodity money' was a fragile and difficult medium; the first half of the book considers the kinds of exchange and credit it invited, as well as the politics it engendered. Capitalism arrived when the English reinvented money at the end of the 17th century. When it established the Bank of England, the government shared its monopoly over money creation for the first time with private investors, institutionalizing their self-interest as the pump that would produce the money supply. The second half of the book considers the monetary revolution that brought unprecedented possibilities and problems. The invention of circulating public debt, the breakdown of commodity money, the rise of commercial bank currency, and the coalescence of ideological commitments that came to be identified with the Gold Standard - all contributed to the abundant and unstable medium that is modern money. All flowed as well from a collision between the individual incentives and public claims at the heart of the system. The drama had constitutional dimension: money, as its history reveals, is a mode of governance in a material world. That character undermines claims in economics about money's neutrality. The monetary design innovated in England would later spread, producing the global architecture of modern money.

Locke is part of the story, in his role as a public official rather than a philosopher (he had quite a life). This comes from a review of Desan’s book.

the Bank of England’s formation also coincided with the reconceptualization of money as simply precious metal in another form—a fable told most prominently by John Locke. In earlier centuries, everyone accepted that kings could reduce the metal content of coins and, indeed, there were good economic reasons to do so. Devaluing coins (raising the nominal price of silver) increased the money supply, a constant concern in the medieval and early modern periods, while revaluing coins (keeping the nominal price of silver but calling in all old coins to be reminted) imposed deflation on the economy. But Locke was the most prominent spokesperson for hard money—maintaining the metal content of coins inviolate. The theory was that money was simply metal by another name, since each could be converted into the other at a constant rate. The practice, however, was that the vast majority of money—Bank of England notes, bills of exchange issued by London banks, and bank notes issued by country banks—could only function as fiat money. This had to be the case because the very policy of a constant mint price had the effect of driving silver out of coin form, vacuuming up the coin supply. If people actually wanted to convert their paper money into silver or gold, a financial crisis could be prevented only through a debt-financed expansion of the money supply by the Bank of England—or by simply suspending convertibility, as England did in the 1790s.

To paraphrase Desan, at the same time that the English political system invented the modern monetary system, liberal theorists like Locke obscured it behind a simplistic fetishization of gold. The fable that money was simply transmutated gold went hand in hand with the fable that the economy was simply a neutral market populated by households and firms seeking material gain. This primacy of the economic over the political—the idea that government policy should simply set the conditions for the operation of private interests—is, of course, one of the central pillars of the capitalist ethos. Among other things, it justified the practice of allowing private banks to make profits by selling liquidity to individuals (that’s what happens when you deposit money at a low or zero interest rate)—a privilege that once belonged to sovereign governments.