John Locke, somewhat allusively, mused that credit is ‘nothing but the expectation of Money within some limited time’.Footnote 1 That was surely an understatement: as it expanded over the seventeenth century, credit drove material advancement and imperial expansion, restructured interpersonal relationships and communities, created the world's first widely circulating credit currency, empowered London as a global financial centre, and established the national debt on which England's nascent fiscal-military state depended. As one historian of modern finance has enthused, the ‘ascent of money has been essential to the ascent of man’.Footnote 2 For all their justified enthusiasm, however, historians of finance, as historians of economic thought, could benefit from reading more into Locke's otherwise banal-seeming revelation. Credit really is ‘nothing but the expectation of Money within some limited time’. As Charles Davenant put it, ‘Of all Beings that have Existence only in the Minds of Men, nothing is more fantastical and nice than Credit’.Footnote 3 The expansion of credit, no matter how ‘fantastical and nice’, existed ‘only in the Minds of Men’. For all its power, it ultimately depended on managing expectations, commitments, and trust.
Economic exchange in early modern England was bound by what Craig Muldrew has called a ‘currency of reputation’, where the necessity of interpersonal credit entailed ‘a system of cultural, as well as material exchanges in which the central mediating factor was credit or trust’.Footnote 4 With a chronically limited money supply, it was rarely possible to pay for goods and services in cash, and so neighbours routinely borrowed from and lent to one another, enmeshing themselves in complex and extensive networks of interpersonal debts and obligations which were recorded in pocketbooks and double-entry accounts. Over the seventeenth century, as more goods and services were sold on the market, yet metallic coin remained short, the growth of institutional and public credit created unaccustomed expectations, complex commitments, and sometimes egregious demands on trust. Increasingly, people exchanging on the market had to trust people whom they had never met – goldsmith-bankers, investors, or Bank of England directors – whose competence or intentions they could not know, to manage, invest, and return their money. That was not always easy: ‘Blood-suckers, mere Vermin, Usurers and Gripers, Goldsmiths, Tally-Jobbers, Exchequer-brokers, and Knavish Money-Scriveners’ did not win everybody's confidence.Footnote 5 By the end of the seventeenth century, swathes of people across the country were tied up in impersonal networks of institutional credit, whether they trusted their creditors or not.
This article suggests Locke's thought on money and the interest rate was more focused on making sense of this complicated transition than has previously been recognized. Though the importance of credit and trust has only relatively recently been identified in early modern social and economic history, their conspicuous absence as subjects for historians of economic thought might owe to a more peculiar historiographical bias. Disciplinary historians searching for origins in the seventeenth century have traditionally interpreted the period's canonical theorists of money and exchange as modernizers, developing a scientific approach to increasing total productive output while ignoring the social, theological, and moral aspects of economic exchange. One author made the point explicitly – that ‘thinking of economic phenomena’ from the mid-seventeenth century ‘forcefully suspended all judgements of theology, morality, and justice, [and was] willing to consider the economy as nothing more than an intricate mechanism, refraining for the while from asking whether the mechanism worked for good or evil’.Footnote 6 Other influential writers have argued Locke helped put free markets on a credible moral footing. Joyce Appleby's account, for instance, interpreted his conception of ‘natural law’ as sanctioning an unrestrained and free-flowing money supply free from government intervention, while C. B. Macpherson found in his corpus some early justifications for the acquisitive and individualistic culture of modern capitalism.Footnote 7 Though much recent scholarship has revealed the more capacious considerations of eighteenth-century political economy,Footnote 8 little work has yet uncovered the centrality of moral and social considerations to the monetary thought of seventeenth-century writers like Locke.
The trail for such work has been blazed by historians of early modern political thought attuned both to the linguistic contexts which structured thought and to the political circumstances within which ideas were articulated. John Dunn, Ian Harris, and John Marshall have reinterpreted Locke's thought, showing how his moral, theological, and political ideas were intertwined with one another, and how they were expressed in contingent contexts.Footnote 9 By drawing these approaches to early modern intellectual history together with the social and economic history of credit, this article engages with the remarkably broad interpenetration of natural and moral philosophy, theology, and political theory which Locke drew on to articulate his doubts about the institutionalization of credit.
I
In 1632, Locke was born to Puritan parents in the Somerset village of Wrington, ten miles south-west of Bristol. Otherwise lacking the means, he was nominated by his father's patron Alexander Popham for a place at Westminster School.Footnote 10 His family's modest wealth owed to the philosopher's grandfather, Nicholas Locke, who had subcontracted his cloth business through the putting-out system, reinvesting his profits in Somerset land.Footnote 11 England's woollen textile industry was then the cutting edge of its nascent commercial society, while colonial expansion brought new wares, and expanding markets encouraged new forms of specialized production and consumption.Footnote 12 Though Locke owed his limited means to, and indeed lived amidst, a now well-documented trajectory of economic growth, it took him some time to develop any conviction in a moral basis for material improvement.
Locke's only notes on money and exchange during his years at Oxford from 1652 were some brief reflections on Thomas Mun's England's treasure by forraign trade, which had been written in the 1620s though was only published and read by Locke in 1664.Footnote 13 That work conveyed an Aristotelian understanding of goods in the universe as static and finite, helping to develop an influential consensus that the shortage of money was responsible for economic stagnation, and that bullion should be kept within the realm via a positive ‘balance of trade’.Footnote 14 Locke would have found many aspects of Mun uncongenial: he would have noticed that Mun wrote to defend the East India Company's re-exportation of spices, while his Tacitean emphasis on private advantage was at far remove from conventional Christian teaching on morality.Footnote 15 But Locke's eight scholastic disputations on natural law, delivered while censor of moral philosophy at Christ Church in 1664, reflected a similarly zero-sum position with respect to markets and exchange. He conceived of the earth's bounty as static and finite, taking the Thomist position that one man's gain must come at another's loss. Consistent with his Ciceronian conception of charity, Locke therefore held that seeking private advantage contradicted natural law, since the ‘inheritance of the whole of mankind is always one and the same’, with goods provided in a ‘definite way and in a pre-determined quantity’.Footnote 16
This changed over the 1660s, as Locke became closely involved with the Oxford Philosophical Club, a circle of intellectuals including Robert Boyle and John Wilkins, who had been involved in the Invisible College, an influential group of reformers connected to Samuel Hartlib during the 1640s. They shared a self-consciously anti-scholastic aim, associated with the writings of Francis Bacon, to harness empirical knowledge of nature gleaned from experimentation and observation for decidedly ‘useful’ and distinctively material purposes. Locke's correspondence with Boyle began in 1660, and over the next decade he appears to have read all of Boyle's publications.Footnote 17 In 1663, Boyle had echoed Bacon in championing natural philosophy's ‘Usefulness, both to his Body and Fortune’ of man. Unlike scholasticism, which ‘hath hitherto been found of very little use in humane Life’, the correct application of man's epistemic faculties could enhance humanity's command over nature: ‘if the true Principles of that fertil Science were thorowly known, consider'd and apply'd, ’tis scarce imaginable, how universal and advantagious a change they would make in the World’.Footnote 18
By 1667, Locke had met Lord Ashley, and that year left Oxford for his household on the Strand, where he newly applied himself to problems of money and exchange.Footnote 19 Ashley was then chancellor of the exchequer, and it was the first time Locke had resided in the trading capital. His writings from then on showed distinctive concern with material prosperity – his Essay concerning toleration (1667) noted, for example, the impact of toleration on the ‘number & industry of your people on which depends the power & riches of the kingdom’ in the wake of the crisis prompted by the Second Dutch War.Footnote 20 Soon after, his unpublished treatise Some of the consequences that are like to follow upon lessening of interest to 4 per cent, begun in 1668 and expanded in 1674, directly engaged with problems of money, exchange, and credit.Footnote 21 In that work, Locke sought to drive ‘the severall wheeles of trade’ by increasing the speed at which money circulated around the country.Footnote 22
This newfound focus on the importance of properly governing monetary exchange was perhaps inspired by Benjamin Worsley, a member of Ashley's entourage, Boyle's circle, and a correspondent of Hartlib during the 1640s. Worsley had highlighted the importance of empirical knowledge, emphasizing its greater potential for public benefit than custom.Footnote 23 In The advocate (1651), written for the Commonwealth's Council of Trade, Worsley posited a state of mediocrity and ignorance, ‘of the low Condition wee are herein’, and suggested that by the example of Solomon in Ecclesiastes 2:5–6, empirical knowledge would help to ‘preserv and maintain this Countrie’ through the ‘due Order and Regulation’ of trade.Footnote 24 Locke had copies of five of his papers in one of his notebooks, detailing complex projects for a colonial re-export trade through the assessment of continental markets to generate capital to stimulate domestic manufacturing.Footnote 25
From the mid-1660s, Locke too sought to advance material improvement by gaining empirical knowledge and using it to govern in the public interest. But he always remained focused on the moral dimensions of money and exchange, drawing, like other Restoration natural theologians such as John Wilkins and John Tillotson, on the relationship between working faith, virtue, and pursuing happiness.Footnote 26 His political economy remained firmly rooted, throughout his mature life, in an inseparable composite of theology, natural philosophy, and moral philosophy – a position summarized by his later Second treatise of government, which famously suggested people were to make use of the Earth ‘to the best advantage of Life, and convenience’.Footnote 27 An improved knowledge of nature through the application of reason allowed men to ‘survey the riches that nature hath stored’.Footnote 28 But since nature alone offered little, ‘only the almost worthless Materials, as in themselves’, advantages were to be pursued through industry and work, since ‘labour makes the far greatest part of the value of things’.Footnote 29 This was, Locke came to argue, God's intention: while He gave the world to men in common, ‘it cannot be supposed he meant it should always remain common and uncultivated’. Scripture conferred divine sanction to cultivate ‘in-land, vacant places’ through the Old Testament example of Genesis; ‘when there was not room enough in the same place, for their Herds to feed together, they, by consent, as Abraham and Lot did, Gen, xiii 5. separated and inlarged their pasture’.Footnote 30 Industriously seeking private advantage became, for Locke, a scripturally sanctioned, teleological mission to cultivate the Earth.
As part of this duty of cultivation, Locke attributed a significant role not only to private property, but also to monetary exchange. An agreement to affix value to ‘little piece[s] of yellow Metal’ introduced ‘larger Possessions, and a Right to them’, since coin did not spoil like perishable goods.Footnote 31 This allowed people ‘the opportunity to continue and enlarge’ their possessions, playing an indispensable role in improvement by encouraging exchange, which maximized the utility of land and encouraged industry.Footnote 32 Despite this indispensability, however, money posed several problems for Locke: not only was there an ongoing shortage of money which was hampering exchange, but the avaricious pursuit of money among some could lead to moral corruption. To make matters worse, as we shall see, contemporary solutions for the monetary shortage entailed entrusting covetous financiers to handle large quantities of it.
II
Before the establishment of the Bank of England at the end of the seventeenth century, money was a physical store of value, based on the assumed intrinsic value and hence scarcity of its constituent precious metal. Not enough bullion was imported over the seventeenth century to match the demand for monetary exchange, and as inflation exacerbated the shortage, the coin which did circulate was both poor in quality and too large in denomination.Footnote 33 From the mid-seventeenth century, Hartlib's circle of reformers had prioritized finding an effective solution to this shortage.Footnote 34 Their suggestions ranged from trade tokens to land banks, but it was the approach of William Petty which proved an especially significant influence on Locke. Drawing on the principle of circulation attributed to the royal physician William Harvey, and following René Descartes and Thomas Hobbes in conceptualizing the body as a machine, Petty's Treatise of taxes and contributions (1662) referred to merchants, retailers, and other dealers as like ‘veins and arteries, to distribute forth and back the bloud and nutritive juyces of the Body Politick, namely the product of Husbandry and Manufacture’.Footnote 35 Unlike earlier Aristotelian writers such as Mun, Petty therefore stressed the importance not just of the quantity of money, but the velocity at which it was pumped around the body.
Locke obtained a copy of Petty's Treatise and collected all his other major works.Footnote 36 Petty's conception undoubtedly appealed to Locke for its use of medical metaphor – between 1666 and 1668, Locke had focused on medicine in collaboration with David Thomas and Thomas Sydenham, specifically drawing on the applicability of medical maxims to broader questions. True knowledge, argued Locke, required man to ‘penetrate into the hidden causes of things, lay down principles, and establish maxims to himself about the operations of nature’.Footnote 37 He came to adopt Petty's innovative solution to monetary circulation in his Some of the consequences (1668), using corporeal maxims to formulate his arguments about how the monetary mechanism worked.Footnote 38
In Some of the consequences, Locke stressed above all that maintaining the natural interest rate (in modern terminology, the equilibrium interest rate between demand for and supply of money set by the market) would facilitate the free-flowing circulation of interpersonal credit. He did so in response to a parliamentary bill which would implement Josiah Child's suggestion in Brief observations concerning trade, and interest of money (1668) for the maximum statutory interest rate to be reduced from the 6 per cent instated by the Usury Act of 1660 to 4 per cent.Footnote 39 Locke argued that making the statutory interest rate far lower than the natural rate would only slow the speed at which money circulated. He wrote that Child's suggestion to lower the ‘rate of Use’ would see ‘the lender (whose Interest it is to keepe up the rate of Money)…rather lend it to the Bancker at the Legall interest, then the tradsman’.Footnote 40 The ‘multiplying of brokers’ would hinder trade by ‘making the Circulation the mony goes Larger, and in that Cercuit more stops so that the returnes must necessarily be slower [and] scantyer to the prejudice of Trade’, since brokers kept ‘so much of the money of a Countery constantly in theire hands’.Footnote 41 The natural rate by contrast motivated people to make profitable returns on their loans to neighbours and tradespeople, allowing money to circulate more quickly around the country. Not only did ‘borrowing of your Neighbors’ quicken circulation, but it avoided the monopolization of coin among brokers and merchants who could afford to lend at lower rates.Footnote 42 Locke's solution to the shortage of money was hence to ensure the maximum statutory interest rate remained as close as possible to the natural rate, so that interpersonal credit could most effectively distribute currency around the country.Footnote 43
Despite the clarity of his treatise, and that Locke explicitly argued both in 1668 and 1691 that ‘borrowing mony upon use’, against traditional objections to usury, was ‘the necessity of affaires and the Constitution of Humane society’, scholars have overlooked the importance of credit in Locke's writing on money and interest.Footnote 44 Patrick Hyde Kelly claimed that, for Locke, the ‘possibility of credit supplementing the circulation of money is considered as small’, while Daniel Carey has suggested ‘Credit itself has a limited place in Locke's understanding of economic transactions.’Footnote 45 These conclusions seem to have been reached from Locke's phrase, which appears both in Some of the consequences and his writings during the 1690s, that credit was ‘noething else but an assurance of money in some short time’.Footnote 46 Kelly downplayed the role of credit in Locke with reference to a similar quote which appears in Further considerations concerning raising the value of money (1696): ‘Credit being nothing but the expectation of Money within some limited time, Money must be had or Credit will fail.’Footnote 47 Locke indeed strongly emphasized that credit depended on the money supply, since all loans must be paid back eventually – ‘Every Man must have at least so much Money, or so timely Recruits, as may in hand, or in a short distance of time, satisfie his Creditor.’Footnote 48
While this seems uncontroversial to the modern reader, its stress should be understood as a criticism of contemporary schemes for institutional credit such as merchant banks. As Carl Wennerlind has shown, mid-century writers associated with Hartlib had considered the potential for institutional credit to facilitate improvement within an alchemical framework, analogizing schemes for a circulating credit currency with the ‘philosopher's stone’ which could enable unlimited metallic transmutation and therefore an unlimited money supply.Footnote 49 William Potter argued the capacity for ‘Credit…as good as Money’ to enrich the nation was ‘in a sort infinite’, while Henry Robinson drew overt analogies: above ‘all other Engines or Instruments’, a merchant bank would be the most important for improving trade, ‘capable of multiplying the stock of the Nation, for as much as concernes trading in Infinitum: In breife, it is the Elixir or Philosophers Stone’.Footnote 50 These approaches to resolving the shortage of money ignored the dependence of credit on the money supply, explaining Locke's insistence that ‘Money must be had or Credit will fail.’ Locke focused on increasing the velocity of monetary circulation through interpersonal credit because there were only two ways of practically increasing the supply of money: ‘to dig it in Mines of our own, or get it from our Neighbours’. When criticizing ‘whatever ways besides these, Men may fansie, or propose, for increasing of Money’, Locke specifically mentioned in his 1691 treatise those who ‘intend to set up for the Philosophers Stone’.Footnote 51
Locke's scepticism about institutional forms of credit, if acknowledged at all, has been put down to ignorance. One author suggests Locke saw debt instruments such as bills of exchange or goldsmith-bankers’ promissory notes, which were essentially transferable loans of deposited funds taking the form of paper money, as mere ‘stopgaps’ because he was ‘out of touch with the English economy in the late seventeenth century’.Footnote 52 Yet, though Locke believed ‘All that a Bill of Exchange can do, is to direct to whom Money due…shall be paid’, he did not disagree in principle that debt instruments would improve trade by quickening circulation.Footnote 53 His 1674 essay on ‘Trade’ echoed Carew Reynell's The true English interest (1674) in suggesting the ‘transferring of bills’ promoted trade, while his earlier 1668 treatise noted bills of exchange were ‘better…then borrowing of our neigbours upon use – if this way of assigneing bills can be made soe easy safe and universall within our territories’.Footnote 54 This last passage points us directly to Locke's real problem with debt instruments: he did not believe they could be properly secured. Consistent with contemporary usage of the term ‘credit’, Locke expressed his scepticism towards institutional credit in terms of trust and honesty. He criticized ‘this way of assigneing bills’ not for its lack of hypothetical advantage in facilitating exchange, but due to the problems of trust it entailed. He regretted that ‘the bill bond or note of Debt I received from one man will not be accepted as security by another he not knowing that the bill or bond is true and Legall or that the Man bound to me is honest or responsible’. Bills were ‘liable to unavoidable doubt, Dispute and counterfeiting’, requiring ‘other proofs to assure us they are true and good security then our eyes or a Touchstone’.Footnote 55
Though Locke knew it could alleviate the shortage of money, the prospect of institutional credit troubled him due to its reliance on the unknowable guarantors of ‘Scrips of Paper’.Footnote 56 Francis Bacon himself had argued that though ‘the Greatest Part of Trade, is driven by Young Merchants, upon Borrowing at Interest’, institutional credit was impracticable since banks ‘will hardly be brooked, in regard of certain suspicions’.Footnote 57 Like Bacon, though Locke accepted the hypothetical benefits of institutional credit, he dismissed it on grounds of trust.
III
Locke's later Some considerations of the consequences of the lowering of interest, and raising the value of money (1691) continued to stress the importance of the natural interest rate for facilitating interpersonal credit, while articulating even more explicitly the problems involved in trusting institutional credit. Artificially lowering the interest rate would ‘make the Difficulty of Borrowing and Lending much greater; whereby Trade (the Foundation of Riches) will be obstructed’ since those without hoards of money would become ‘backward to Lend, the Reward not being judged proportionable to the risque’.Footnote 58 By contrast, keeping the legal rate closer to the natural rate would avoid reliance on monied men, given people ‘will not be forward to carry it to London, to put it into the Bankers Hands; but will Lend it to their Neighbours in the Country, where it is convenient for Trade it should be’.Footnote 59 Locke made the same case more firmly: maintaining the naturally higher interest rate would disperse interpersonal credit more widely, and stop institutional creditors hoarding money.
The strengthening of Locke's position might reflect the confirmation of his suspicions about the precariousness of bank credit following the collapse of securities and the dislocation of credit networks during the Stop of the Exchequer in 1672, when debt instruments distributed by goldsmith-bankers, such as bills of exchange, were nullified as the crown failed to repay its debts upon entering another war with the Dutch. Six of the largest goldsmith-bankers who had lent to Charles II suspended payments as they entered insolvency.Footnote 60 Charles himself had owed over £1.2 million to goldsmith-bankers, and the Stop provoked widespread distrust.Footnote 61 In September 1674, Locke sent his patron (then titled the earl of Shaftesbury, who had been blamed for sanctioning the Stop) a copy of Thomas Turner's The case of bankers and their creditors stated and examined (1674), which criticized Charles for breaching his 1667 promise to ‘preserve inviolably the Securities by him given for moneys’.Footnote 62 As Turner argued, the Stop impacted borrowers across the country: ‘if the King never payeth the Banker, the Banker can never pay me, or I the third person, or he the fourth’. Turner used an agreeable circulatory metaphor: ‘money is the blood of the Body Pollitique, and we know if the circulation thereof be stopt in one Member…the whole body in time becomes Feavourish and languishant’.Footnote 63 In November 1674, Shaftesbury wrote to Locke decrying bankers as ‘destructive to the Nation’, because ‘no Gentleman Farmer or Merchant Could without great difficulty Compasse money for their occasions unlesse at almost double the rates the law allowed to be taken’.Footnote 64 Locke and Shaftesbury both lamented that, given the quantity of specie which by then had been hoarded by bankers in London, the rupture of institutional securities restricted access to credit and therefore the continuation of exchange throughout the country.
While his quips about ‘Monied Men’ and ‘Bankers Hands’ clearly reflected his suspicion, Locke also expressed his distrust towards financiers more straightforwardly. He lamented the bankers’ monopoly and ‘what a part of our Treasure’ is ‘apt to draw into their Hands’.Footnote 65 He went on: ‘it is almost beyond Belief, That one private Goldsmith of London should have Credit upon his single Security (being usually nothing but a Note under one of his Servants Hands) for above Eleven hundred thousand Pounds at once’.Footnote 66 When speaking of ‘Bankers and Scriveners, and other such expert Brokers’, Locke pointed to his suspicions of ‘secret Trusts and Collusions amongst Men, that though they may be suspected, can never be proved without their own Confession’.Footnote 67 Such complaints were common – Andrew Yarranton's England's improvement (1677) argued that it was only because ‘Land Security was so uncertain and bad’ that men went to goldsmith-bankers despite their ‘slender Security for their Moneys’. By the time word got out that their money was squandered by loans for ‘intended designs or hazardous adventures’, creditors crowded to bankers ‘as Pigs do through a hole to a Bean and Pease Rick’.Footnote 68
But Locke's distrust of institutional credit also reflected something more profound. As John Dunn has shown, trust was a central aspect of Locke's conception of civil society.Footnote 69 His Second treatise, which intended to establish rational grounds for resistance to authority in the wake of growing concern about the Anglican Royalist vision of the post-Civil War polity, imagined a political community where government was held accountable through trust.Footnote 70 It was dissolved when the community decided it had violated the trust placed in it to act according to the ends of protection and justice for which it was established by the law of nature. Two points must be made here. First, Locke's conception of trust was consistent with the Ciceronian notion of fides, or the act of keeping promises, which he took to be fundamental for justice.Footnote 71 Secondly, this trust, or keeping of promises, was based on an epistemic apprehension of the personal moral intentionality of other individual human agents, rather than the institutional or systematic structures such as constitutions or political organizations in which they partook. When a community, by social compact, conferred authority onto civil government, it bestowed specifically ‘the Governours, whom the Society hath set over it self, with this express or tacit Trust’.Footnote 72 As Dunn has argued, Locke was actively concerned with failure of institutionalized human relations to generate a viable moral identity in their participants.Footnote 73 His conception of trust was hence based on an interpersonal, rather than an institutional relationship. It was concerned specifically with whether ‘the Man bound to me is honest or responsible’.Footnote 74
For Locke, trust was central not only to political justice, but also ethical and religious duty – the act of keeping promises was the bond (vinculum) of society, and a central moral imperative for all rational beings: ‘Truth and keeping of Faith’ belonged to ‘Men, as Men, and not as Members of Society’.Footnote 75 And yet, he believed, money had the potential to undermine this interpersonal trust. His Second treatise singled out money as a uniquely vital instrument in empowering humanity to fulfil its divine duty to cultivate the Earth, but also considered its manifold moral ills. Following Hugo Grotius and Samuel Pufendorf, Locke argued that the growth of monetary exchange had made the fulfilment of moral obligations more challenging, indeed requiring the first exertion of justice.Footnote 76 There had been a pre-monetary ‘golden age’, where the virtues of ‘Acquaintance’, ‘Friendship’, and ‘Trust’ allowed men to persist with the ‘simple, and most obvious’ government of paternal monarchy.Footnote 77 The invention of money ‘corrupted Mens minds into a Mistake of true Power and Honour’, creating the ‘vain Ambition, and amor scleratus habendi, evil Concupiscence’ of rulers, while also producing ‘vicious Subjects’. The ‘opportunity to continue and enlarge’ property helped cultivate the earth, but also created inequality, engendering conflict and necessitating more complex political adjudication.Footnote 78 One of Locke's unpublished essays argued that monetary exchange and its associated traits of ‘covetousness, pride, and ambition’ had, ‘by fashion and example’, ‘spread the corruption which has so prevailed over mankind’.Footnote 79
Importantly, Locke distinguished covetousness, the desire for superfluities based on taking from others, from the legitimate, industrious acquisition which served the common good.Footnote 80 He made an annotation on 1 Corinthians 10:24, which exhorted to ‘let no man seek his own but every man anothers wealth’, that ‘Noe man must seek barely his own private particular interest alone but let every one seek the good of others also.’Footnote 81 The industrious, monetarized transformation of nature which enlarged private property and cultivated the earth was to be encouraged, but Locke clearly had moral reservations about the covetous desire for wealth alone. His quips about ‘secret Trusts and Collusions’ among ‘Monied Men’ hence pointed to a serious concern: trusting ‘Monied Men’ meant personally trusting those with an ‘Inclination to riches’, a form of moral corruption which might prevent them from performing their ‘indispensible Duty’ to contribute to ‘the Welfare and Prosperity of the Nation’.Footnote 82
IV
Locke advocated the natural, higher interest rate, and thus a widely dispersed system of interpersonal credit, not only as an alternative to trusting potentially covetous ‘Monied Men’, but as a way of rendering credit just, which would ensure borrowing and lending evoked a consonance between human motivation and the keeping of promises. He did of course know that such promises could be broken: as an absentee landlord of a modest estate in Somerset, he was well-acquainted with the difficulties of this currency of reputation. In late 1693, William Stratton, Locke's agent in Somerset, failed to pay a debt owed to Edward Clarke, Locke's friend, political associate, and steward of his estate, as promised in Michaelmas term.Footnote 83 Stratton eventually arranged a bill of exchange to be paid to Mr Codrington, a shopkeeper on Bristol high street, to be passed onto Clarke in London.Footnote 84 This lateness was nevertheless unacceptable, and Locke castigated Stratton for his lack of diligence: ‘Not receiveing the money according to my expectation and need of it, nor hearing any thing of it from you’, he asked ‘Who could I demand it of or write to for it but you?’ Locke had ‘reason to conclude [Stratton] could then find noe return at all’.Footnote 85 Just as Stratton appealed to Locke that Codrington was an ‘Injenious squar’ (i.e. an honest and reliable man), Locke criticized Stratton in the light that he had ‘noe doubt of Mr Cothrington’.Footnote 86 During the monetary crisis in the 1690s, Locke continued to struggle with Stratton's accounting and toiled to receive payments for debts owed to him by the earl of Shaftesbury and Robert Pawling. And he made laborious attempts to reckon and settle his accounts, grappling with the bereaved family of his Oxford friend and fellow physician David Thomas who suffered an apparent case of amnesia concerning the agreed interest rate on a loan worth £600.Footnote 87
Despite personally experiencing the inevitable inconveniences of interpersonal credit, Locke nevertheless thought it represented a more congenial solution to the problem of improving the circulation of money than the institutional alternative. By requiring trust between neighbours, interpersonal credit united motivation with the fulfilment of moral obligation. Locke laid stress on this in his short Ciceronian essay ‘Venditio’ (1695), which attempted to show how money made motivation and justice consonant through just exchange.Footnote 88 He wrote that selling commodities at a low rate could result in resale by a wealthy purchaser, with the buyer unjustly making ‘profit’ from the seller's ‘weakness’, while someone selling commodities at a high rate would equally unjustly ‘enrich himself so as to make another perish’. The only just rate in exchange was hence at the ‘natural value’ of commodities, as determined, for instance, by ‘the proportion of the quantity of wheat to the proportion of money in that place and the need of one and the other’.Footnote 89 The sphere of credit relations can be seen as equivalent, where instead the natural rate of interest rendered motivation and justice consonant – positive legislation forcing people to lend at the lower rate would not accord with human motivation, since some people ‘for their own Advantage’ would continue illegally to borrow and lend at its natural rate. Hence, Locke argued in typical Ciceronian form, ‘Faith and Truth…the great Bond of Society’, which it was the ‘Wisdom of Magistrates carefully to support’, might be rendered less ‘sacred and awful in the Minds of the People’ if encouraged to make unlawful credit agreements.Footnote 90 Such unlawful agreements, which Locke took to be inevitable if positive law and social motivation were not consonant with moral obligation, could risk subverting the bonds of faith and truth which Locke believed were essential for organized society and all rational beings.
In Locke's ideal state of communal relations, people would be motivated towards reputation, rather than riches. He incorporated the idea into his educational writings: ‘[i]f you can once get into Children a Love of Credit [reputation], and an Apprehension of Shame and Disgrace, you have put into them the true Principle, which will constantly work’.Footnote 91 His 1678 journal entry ‘Reputation’, with the marginal keywords ‘Credit, Disgrace’, suggested that reputation was ‘The principal spring from which the actions of men take their rise, the rule they conduct them by, and the end to which they direct them.’Footnote 92 Yet one had to be careful: ‘Where riches are in credit, knavery and injustice that produce them are not out of countenance…Where power, and not the good exercise of it, gives reputation, all that injustice, falsehood, violence, and oppression that attains it, goes for wisdom and ability.’Footnote 93 Since it was ‘fashions’ which determined what conferred reputation, he who ‘would govern the world well, had need consider rather what fashions he makes’.Footnote 94 Against the fashion of riches, associated with money-handlers who made profiting from institutional credit their profession, the fashion of reputation, associated with neighbours making interpersonal credit agreements with one another, would facilitate justice by making it consonant with human motivation in the marketplace.
V
The final part of this article turns to the problem of public credit and the establishment of the Bank of England at the end of the century. Proponents of the Bank and similar schemes argued that a circulating credit currency of publicly secured and fully negotiable debt instruments would conclusively solve England's monetary woes.Footnote 95 To make their case, pamphleteers like Andrew Yarranton criticized goldsmith-bankers’ securities, proposing a ‘Bank as will be for the benefit and advantage of the whole Kingdom, and Trade Universal’ by establishing a proper security on lands and estates.Footnote 96 By contrast, following his return from exile in Holland in 1689, Locke applied his criticisms of goldsmith-bankers to the Bank. In 1696, after receiving the Bristolian merchant John Cary's essay on ‘the coyn and credit of England’, Locke replied in agreement with its recommendations about improving commerce, yet wondered how he might make public credit practicable.Footnote 97 Significantly, the Bank had already been founded in 1694. Envisaged as a temporary solution to desperate state finances, it helped fund William of Orange's costly war with France following the Glorious Revolution. The system depended on a fractional reserve of bullion akin to that of the goldsmith-bankers, with its notes redeemable for coin on demand. Despite an enduring assumption that Locke was enthusiastic about the Bank,Footnote 98 he was in fact dubious about its trustworthiness.
Locke invested early in the Bank, with an initial subscription of £500 in 1694.Footnote 99 It seems, however, to have been a hasty decision. In June, he wrote to Edward Clarke, telling him that just four days before, he had met John Freke, and ‘upon discourse with him he told me he had subscribed £300. which made me subscribe £500 and soe that matter stands last night the subscriptions amounted to £1.100.000 and to night I suppose they are all ful’.Footnote 100 But he quickly speculated on the £250 he had invested so far, selling his stock for £255 in October.Footnote 101 Interestingly, Robert Liddell, who helped write by-laws for the Bank in August, acted similarly. In November, Liddell reported the subsequent rising of stocks to Locke, expressing regret that they could not have known ‘what it's now come to’ by ‘rationall proceeding, or steady improvement’. Liddell also referred to a previous conversation with Locke – that he ‘cannot retract, from our former sentiments’ about ‘how finely they [the Bank's directors] hope to Coques [coax] our unsighted Country Gentlemen, with hopes, of accommodation, and low Interest, for them’. He nevertheless offered his support should Locke wish to ‘persue [his] intention, of engaging againe’.Footnote 102 Indeed, in 1700, Locke did increase his book-value holding in the Bank to £1,100, though this was under the direction of Peter King, who was by then managing his investments.Footnote 103
Following his initial investment, Locke privately expressed his concerns about the Bank on several occasions. In a letter to the ‘College’, John Freke and Edward Clarke, in February 1695, he criticized the Bank on familiar grounds of monopolizing the money market. Since the Bank would always be ‘managed by London merchants’, their preferential treatment to friends would see ‘the greatest part of our trade…in a little while by secret combinations be got into a few hands’. Parliament ought instead to have considered ‘how money might be better distributed into the country’ rather than ‘drawing it all to London’.Footnote 104 By the turn of the century, Locke confided in King that, given his contentment ‘with less profit upon surer funds’, he preferred a ‘good land security’ to ‘Bank or East India stock’.Footnote 105 Although these comments are suggestive, a much clearer picture of Locke's attitude to the Bank is revealed by a series of notes dating from 1694.
The first of these are his comments on the Bank of England Act of the same year.Footnote 106 Against Clause XXV, that the Corporation should not borrow above its reserve of £1,200,000, Locke wrote on the margin of his notebook, ‘This is not to be known.’ Against Clause XXVI that the Corporation was not to trade: ‘not to be known’.Footnote 107 On Clause XXXI, which legislated that the exchequer was to pay off judgements made against the Corporation (as not to harm the Bank's own reserves), Locke wrote to ‘Q…these offices of the Exchequer’, noting this clause would not restrain lending to the court.Footnote 108 Locke's concerns are then expressed more clearly on the following pages, in a neglected source for interpreting his concerns: a dialogue about banks, which is also dated from 1694 and written in his hand.Footnote 109
The informal Ciceronian-style dialogue was perhaps influenced by Locke's conversation with Liddell. It has two interlocutors, of whom ‘C’ is dominant. ‘A’ learns from ‘C’ a series of reasons why banks, and in particular the Bank of England, might not be worth their creditors’ trust. It begins with ‘A’ asking whether he should ‘lend my £10000 to the Corporation’ in the hope it might be ‘better security…than a goldsmiths note’, to which ‘C’ advises it ‘perhaps will be found not soe good’. The first reason was that while goldsmith-bankers had carefully kept their reserves through reinvestment, the Bank would not always have ‘ready cash to answer all demands if they borrow upon interests’.Footnote 110 This was because the Bank's profits depended on lending, which was (unlike for the goldsmiths) capped at a rate of 6 per cent. Given ‘the money that lies dead by them will eat out their profit’, the Bank would be unlikely to maintain its reserve, and hence creditors risked not being able to exchange notes for ready cash on demand. ‘C’ suggests the public security of negotiable debt instruments was therefore worse than that of private moneylenders, claiming the public accounting of the Bank, unlike the goldsmiths who ‘kept every thing private’, further compromised its security.Footnote 111 ‘A’ concurred: such a ‘great Treasure heaped to geather in view may make many peoples fingers itch’ – it would be susceptible to naval mutiny or monarchical encroachment.Footnote 112 After its so far damning account of the Bank, the ‘Dialogue’ came to consider the problem of trust: the ‘stedinesse skill & honesty of the managers’. Though both acknowledged their present good character, ‘C’ made the sceptical case that it was impossible to know ‘who will succeed them’. ‘C’ hence concluded with a catechizing interrogation on the trustworthiness of public credit. Asked if ‘the sincerity of the world [is] at soe high a pitch with yu that yu can venture yr money in the trust & managemt of yu know not whom’, the previously more optimistic interlocutor responded woefully. ‘Truly you have startled me & I think it will be safer in my owne Chest.’Footnote 113 In the final instance, the Bank could not be trusted since it was impossible to know the intentions of those responsible for securing it.
Locke was not alone in this objection. It has been claimed that the trustworthiness, or ‘credit commitment’, of the Bank was initially ascertained by parliamentary backing, persuading investors of its security.Footnote 114 Indeed, proponents of the Bank certainly argued its directors were answerable to shareholders, and that its constitutional foundation should assure creditors.Footnote 115 Locke probably also preferred parliament over the crown as a guarantor: notwithstanding the Stop, neither Charles II nor the incumbent William III had paid the arrears of his salary as secretary to the Council of Trade and Plantations.Footnote 116 There is, however, little evidence that contemporaries saw parliament as an effective security, and it was abundantly clear that political persuasions could change.Footnote 117 As Freke and Clarke warned Locke in April 1695, a proposed clause for parliamentary enactment allowing the Bank to issue bills and lend to the crown above the £1.2 million statutory limit would put the Bank ‘entirely in the power of the Court’.Footnote 118 The fact that responsibility for the Bank's security ultimately lay with individuals escaped neither Locke nor his contemporaries.
Rather than trust in the theoretical institutional structure of the Bank, pamphlets critical of the Bank, especially after the lapse of the 1695 Licensing Act, framed their central concerns as Locke did: around the trustworthiness of its management.Footnote 119 Cary complained to Locke in 1696 that the managers of the Bank ‘have not acted hithertoe by Principles either of honesty or pollesy’.Footnote 120 One anonymous pamphlet, A letter to a friend concerning the credit of the nation (1697) explicitly noted that it was for the ‘very same Reasons, and by the same Methods’ as a private individual that a ‘Publick Bank may Establish and Preserve or Destroy its Credit’.Footnote 121 Perhaps the most widespread concern was that the Bank would ‘soon resolve into a Faction for Private Advantage’.Footnote 122 The small number of the Bank's directors rendered them ‘subject to the Temptation of Corruption’. Virtuousness in the form of honesty, and thereby trustworthiness, was even more important for public than private credit: ‘For though Substance may be Security to Private Creditors, nothing less than Integrity, Honesty, and Self-denyal can be such to Government, and the true Interest of a Community.’Footnote 123 It was this kind of trust, rather than parliamentary ‘credit commitment’, that Locke too argued institutional and public credit demanded, yet could not provide.
The argument of this article, that Locke was specifically averse to institutional and public credit in terms of trust, calls for a significant revision in our understanding of his monetary thought. Locke's defence of ‘intrinsic value’ bullion coin during the debates surrounding the Great Recoinage of 1696 has either been explained in terms of his philosophy of language, his wariness over the socially constructed meanings of ‘mixed modes’, or his desire to find a ‘foundation in nature’.Footnote 124 This study suggests there may be a more significant reason why symbolic and credit currencies troubled Locke: they rested on institutional management.Footnote 125 Locke emphasized maintaining the ‘natural’ interest rate, not only to make a limited money supply go further with interpersonal credit, but also because he considered the broader moral and political context of market activity. In doing so, he made a case which has not yet been fully appreciated: whether held accountable by formal institutional processes or not, the ultimately unknowable intentions of distant human agents responsible for other people's money can all too easily occasion distrust and disappointment.
