26th January 2012
Locke was a bad economist
Locke seems to have made fundamental errors in economic theory
While he was a great political philosopher, he did not understand the implications of his political theory for the economy. That explains why it took so long for England to move away from mercantilism despite the presence of many excellent political thinkers prior to Adam Smith.
The precursors of modern economics were the Scholastics, who made many useful deductions about he price system. Locke had studied the Scholastics intensively when he was young, but he seems to have missed out their understanding of markets. Therefore he ended up with muddled ideas. As Richard Aaron notes:
Locke was a Mercantilist. Locke's main concern was with the quantity theory of money, exchange relationships between countries and theory of international prices, the use and control of the precious metals, and usury. [Source: Aaron's book, John Locke, p.39.]
Locke, towards the end of his life, had become a highly venerated person, equally if not more well known across England (and the Continent) than Isaac Newton. He was also valued by the Whig government for his executive skills and diligence, being therefore given many senior government assignments (at good recompense).
Locke at that stage seems to have written on a few economics matters (e.g. Some Considerations of the Consequences of the Lowering of Interest and the Raising of the Value of Money), and participated actively in calling in all debased coinage and recoining it according to standard weight, the cost to fall upon the Exchequer – an event that took place finally in 1696.
The Bank of England, created in 1694, gave a monopoly to the English government to borrow as much "money" as it wanted for its wars and other (usually) unnecessary expenses. It turns out that John Locke was one of the original subscribers to the Bank, contributing 500 pounds – a fortune in those days. It is not clear to me whether Locke supported the idea of a central bank, for his participation could well have been a commercial decision. But he obviously did not oppose it strongly enough – a great misfortune, from which we are still suffering.
Things get worse for Locke.
As questionable an "economist" as Keynes, in Chapter 23 of his General Theory of Employment, Interest and Money argued that Locke's theories are still of great importance (page 344). [I don't have time to comment on this specific issue, but the act of being praised by Keynes is very damaging!]
It can now be established, consequently, as a working conclusion, that Locke was deeply confused about the economy. It is really good that Adam Smith came along two generations later to enlighten us about the price system.
Locke, however, had always remained humble enough to accept that he may be wrong. He might have, I believe, been dissuaded of his erroneous economic ideas had he lived long enough to understand the economy properly. I'm willing to give Locke the benefit of doubt. None, however, to Keynes.