April 2, 2012
Are The Free Markets In Need Of Regulation?
From the early decades of the 17th century, English bankers were bitter at the superior prosperity and economic growth enjoyed by the Dutch. Observing that the rate of interest was lower in Holland than in England, they chose to leap to the causal analysis that the cause of the superior Dutch prosperity was Holland's low rate of interest, and that therefore it was the task of the English government to force the maximum rate of interest down until the interest rate was lower than in Holland which meant bringing it down to 4% from 6%. When the House of Lords' committee held hearings on the interest-lowering bill during 1668–69, it decided to hold testimony from members of the king's council of trade, of whom Josiah Child was a central figure. But another important figure was a unique member of the council of trade, and also a member of the Lords' committee, the great Lord Ashley, John Locke's new and powerful patron. As a classical liberal, Ashley opposed the bill, and at his behest, Locke wrote his first work on economic matters, the influential though as-yet-unpublished manuscript, "Some of the Consequences that are like to follow upon Lessening of Interest to Four Percent" (1668). Locke made clear in this early work his profound insight and thorough going commitment to a free-market economy, as well as his later structure of property-rights theory.
Locke displayed straightaway his skill at polemics; the essay was basically a critique of Child's influential work. First, Locke cut through the holistic rhetoric; of course, he pointed out, the borrowing merchant will be happy to pay only 4 percent interest; but this gain to the borrower is not a gain for the national or general good, since the lender loses by the same amount. Not only would a forced lowering of interest be at best redistributive, but, Locke added, the measure would restrict the supply of savings and credit, thereby...