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LOCKE'S TREATISE ON MONEY.

IV.

Locke's

Treatise on

LECTURE IV.

LECTURE THE Commencement of the 18th century may be considered to have been the transition period in Europe in respect of the science of wealth (XII). The ancient notion of gold and silver being the sole articles of wealth had been successfully impugned, and these metals were now deemed by many persons to be commodities, more desirable, indeed, to possess than other commodities from their natural and conventional qualities, but still subject to variations and inequalities of value, as other commodities. Thus Locke, in his "Treatise on Money," writes: "In exchanging coined silver for any other commodity Money. (which is buying and selling), the same measure governs the proportion you receive, as if you exchange lead, or wheat, or any other commodity." How, indeed, that proportion was determined, and whence commodities derived their value in exchange, remained still to be investigated. Some writers conceived that the value of money was purely conventional; that mankind had tacitly agreed to employ it as a common measure, by which they might reckon the proportion which "the scarcity or vent" of one commodity bore to that of another. For instance, where a commodity measured according to its bulk, as a hogshead of wine, had to be compared with a commodity measured according to its weight, as a hundred weight of iron, or with commodities measured according to their number, as a score of sheep, it is evident that a common measure would very much facilitate the determination of the proportions in value which given quantities, numbers, and weights, bore to one another. Such an office money was ob

THE REGENT ORLEANS.

IV.

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served to fulfil, and as a system of tokens or counters LECTURE might be agreed upon to discharge such functions, analogous to those which arbitrary symbols are employed to fulfil in mathematics, a large class of persons were content to acquiesce in such an hypothesis, to explain how money had come to serve as a common measure. Others, on the opposite hand, admitting the theory of a general tacit agreement to employ money as a common measure, still held that its value was not wholly conventional, but was partly influenced by similar conditions to those which determined the value of other commodities; but what those conditions were, was not yet settled. The most obvious explanation was, that they were the conditions of supply and demand, for it was on the surface of things that the market value fluctuated according to those conditions; but it could not escape notice that the market value continually as it were gravitated towards a standing settled value; and the reason of this remained to be discovered. Some few had perceived that the rarity of a commodity corresponded to the difficulty of procuring it; but how that difficulty was to be measured, and to what causes it was to be referred, eluded discovery. Whilst, therefore, this problem remained undetermined, there would be an opening for much unsound speculation, and we should not be surprised to find financial embarrassment, as it had been already the cause of the adoption of imperfect systems, now disposing statesmen to lend too ready an ear to the recommendations of plausible experimentalists.

An adviser of this character presented himself in the person of the well-known John Law, to the Regent Orleans in France, at a most critical pe- The Regent riod in the history of French finance. The gorgeous extravagance of Louis XIV. had exhausted all the resources, which the ingenuity of Colbert's successors

Orleans.

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IV.

JOHN LAW.

LECTURE could devise, and had overwhelmed the treasury in debt, and the accompanying embarrassment was not confined to the state, but extended throughout all classes of society. The capital of the public debt on the demise of Louis XIV. amounted to 300 millions of French livres, and in the first council of state held by the Regent, it was proposed to sacrifice the creditors of the state, as being the smaller number, whose ruin might justly be a subordinate consideration to the John Law. preservation of the country. Law had previously appeared in Paris during the lifetime of Louis XIV., full of grand but visionary conceptions as to the extent to which public credit might be safely developed, and conventional values be substituted in the place of real values: but his plans, which he laid before the controller general Desmaretz, were rejected, as fraught with greater dangers than the difficulties which they were intended to obviate.

Law had studied the operations of commerce and credit in most of the great cities of Europe; he had beheld great results apparently flowing from the establishment of banks of deposit, such as that at Amsterdam, of which the bank-money or credit in the books of the bank, representing the value of the deposits of gold and silver in its cellars, was current at a higher rate than specie money. He had seen the foundation of an incorporated bank of circulation in England, attended with most advantageous results to the state, through the assistance which the issue of a paper currency of 1,200,000l. enabled it to furnish to the government. He was likewise aware that the notes of the bank in Scotland, which, however, had not maintained itself for a very long time, had circulated at their nominal value, at a time when there was no gold or silver in the coffers of the bank, though their acceptance was voluntary. Law reflecting on these different facts, had come to the conclusion that it was by mis

CONSIDERATIONS UPON MONEY AND TRADE.

93

take that mankind had come to employ the precious LECTURE metals as the agents of circulation, and that paper IV. money, if made the representative of value, would fulfil all the purposes of a common measure, with much better effect, from not being a commodity, and so not being liable to fluctuation in its value. The bank in Scotland, to which allusion has just been made, had not succeeded, and it was proposed to establish one on a different plan. On this occasion Law submitted his views to the Parliament of Scotland, in a memoir, entitled "Money and Trade considered, with Consideraa Proposal for supplying the Nation with Money," Money and published at Edinburgh in 1705, in which, as might Trade. be expected, there is a curious combination of acute perception with erroneous inferences.

"The value of things," says he, "is not determined according to their more or less necessary uses, but according to the greater or less quantity of them, in proportion to the demand. Water is of great use, yet of little value, because the quantity of water is much greater than the demand for it. Diamonds are of little use, yet of great value, because the demand for diamonds is much greater than the existing quantity

of them."

This is a clearer statement of value, as distinguished from utility, than we meet with in any earlier writer.

Law in another publication objected to Locke's statement, referred to in a previous Lecture, namely, that the value of goods was "according to their quantity, in proportion to their vent," on the ground that the vent of goods cannot be greater than the quantity, but the demand may be greater. Certainly Law's terminology is more precise, and carries us a step farther than Locke's; but Locke's language was meant to denote the same fact, the vent being considered the index of demand. After all, the phrase, "demand

tions upon

94

IV.

LAW'S NOTION OF VALUE.

LECTURE for an article," is a conventional mode of expression, by which, in reality, the relative supply of other articles of exchange is denoted, the demand for any one article being governed by the supply of other articles.

Law's

notion of value.

Law goes on to say, "the value of things varies from two distinct causes, the greater or less quantity of products, and the greater or less quantity of money. Of these two causes, the one is beyond the control of man, whilst the other may be subjected to his regulation. We cannot, indeed, secure that the quantity of corn, wine, &c., shall at all times be sufficient for men's wants; but we may provide, that the quantity of money shall always bear a proper relation to the demand, provided this money has no intrinsic value, does not consist of gold and silver."

The distinction here made between the general value, and the specific value of commodities, corresponds to the distinction made by Locke between value and price, which is obvious when enunciated; but Law was in error, in maintaining that prices would always fluctuate as long as money had any intrinsic value, for if the state could duly regulate the supply of it, its intrinsic value might be maintained at a constant level, equally as its conventional value. The experience of modern days renders it unnecessary to do more than state this fact.

"There would be," Law continues, "in such a state of things, an immense advantage, as money is the originating principle of labor, the cultivation of the soil, the growth of population. Rich countries are such as have plenty of money; poor countries, those where it is scarce."

The meaning of the first of these two sentences is made more clear elsewhere, in another work, where he says, "Domestic trade depends on money. A greater quantity employs more people than a lesser quantity.