 Welcome to George H. Smith's Excursions into Libertarian Thought, a production of Libertarianism.org and the Cato Institute. John Locke, Money and Private Property In previous essays, I discussed John Locke's claim that labor is the moral foundation of property rights. It must be understood that his labor theory of property differs from a labor theory of value in an economic sense. Although Locke posited labor as the moral foundation of property, he did not believe that the quantity of labor needed to produce a commodity ultimately determines its market price. On the contrary, the price of labor is determined by the relative scarcity of labor, its supply relative to demand in a given market, as Karen Von noted in John Locke, Economist and Social Scientist. Obviously, since Locke describes the value of labor being determined by the market price, rather than showing price as being somehow determined by the quantity of labor which goes into a product, he was far from describing a labor theory of value in either a classical or a Marxian sense. Von's book is a superb account of Locke's theory of economics. It corrects a number of common misconceptions about Locke, such as the erroneous claim that he was an orthodox mercantilist. Von also argued that Locke's theory of capital is more closely related to the later Austrian school than to either the classical or neoclassical economists. When Locke argued that labor puts the difference of value on everything, that it increases the intrinsic value of natural resources, he meant that labor vastly increases their usefulness to the life of man. Here, Locke implicitly evoked a standard distinction in early economic thought, which goes back at least to Aristotle, between value in use and value in exchange. According to this misleading distinction, it is value in exchange not value in use that ultimately regulates market prices. Land that has been cultivated by human labor will yield far more produce that is useful to human beings than will uncultivated land. Locke gave a lowball estimate of 10 times more productivity with cultivated land, but he speculated that the increase will actually be a hundred or even a thousand times greater. This observation was an important part of Locke's explanation of why his proviso, according to which the private appropriation of land is justifiable only when there is enough and as good left in common with others, is not, in fact, a serious problem for his labor theory of private property, most notably in land. For one thing, the amount of land any individual can cultivate is quite limited. The measure of property nature has well set by the extent of man's labor and the convenience of life. No man's labor could subdue or appropriate all, nor could his enjoyment consume more than a small part, so that it was impossible for any man this way to entrench upon the right of another or to acquire to himself a property to the prejudice of his neighbor who would still have room for as good and as large a possession after the other had taken out his as before it was appropriated. This measure did confine every man's possession to a very moderate proportion. Locke believed that the world's population in his day could easily double and still leave plenty of unowned common land for others to use and appropriate as private property. But to focus entirely on the availability of unowned land is to overlook the enormous increase of productivity brought about by labor. The private cultivator of land, far from decreasing the amount of goods available to others, in fact increases those goods many times over. Land itself is of very little value without labor and he who applies his labor to land does not lessen but increases the common stock of mankind. Locke maintained that land, like every other economic good, is valued only because of its usefulness or utility to man. Land is useful insofar as it enables us to sustain ourselves and to achieve our well-being. Thus, the private owner and cultivator of land, by vastly increasing the amount of useful commodities that uncultivated land would otherwise yield, greatly improves the condition of mankind generally. Private property in land and other natural resources benefits everyone. Next in line is Locke's discussion of money, precious metals, and how it counteracted his spoilage limitation, which I discussed in my last essay. The spoilage limitation does not limit the amount of property one may justly acquire. It merely prohibits claims of ownership to perishable goods that will spoil while in one's possession. The exceeding of the bounds of his just property, not lying in the largeness of his property, but in the perishing of anything uselessly in it, one may therefore expand one's stock of private property exchanging perishable goods that one cannot use for useful goods, for barter is a type of use, or one may exchange perishable goods for durable goods that will not spoil, such as precious metals. Here is how Locke explained the matter. Now of those good things which nature hath provided in common, everyone had a right to as much as he could use and had a property in all he could affect with his labor, all that his labor could extend to, to alter from the state nature had put it in, was his. He that gathered a hundred bushels of acorns or apples had thereby a property in them. They were his goods as soon as he gathered. He was only to look that he used them before they spoiled, else he took more than his share and robbed others. And indeed, it was a foolish thing, as well as dishonest, to hoard up more than he could make use of. And if he also bartered away plums that would have rotted in a week, for nuts that would last good for his eating a whole year, he did no injury. He wasted not the common stock, destroyed no part of the portion of goods that belonged to others, so long as nothing perished uselessly in his hands. Again, if he would give his nuts for a piece of metal, pleased with its color, or exchange his sheep for shells, or wool for a sparkling pebble or a diamond, and keep those by him all his life, he invaded not the right of others. He might heap up as much of these durable things as he pleased. According to Locke, as precious metals were widely accepted as money, it became possible to accumulate potentially unlimited amounts of property without violating the spoilage limitation. This development was especially important to the ownership of land. Before the advent of money, people were little inclined to expand their landed property, for there were only so many natural resources they could use for the benefit of themselves and their families. But things changed dramatically when excess land and its products could be sold for money, a durable form of wealth that does not violate the spoilage limitation. Money brought with it extensive commerce, and this commerce in turn, by increasing both the diversity and demand for commodities, greatly enhanced the wealth of nations. In my last essay, I suggested that Locke posited these two qualifications to property rights primarily for the purpose of demonstrating their inapplicability to his own labor theory of property. I shall now recapitulate his reasoning. First, the proviso that property claims should leave enough for others to use is not a serious problem, because the amount of property that any individual can use and may claim by mixing his labor with it is very limited. Moreover, the private cultivator of land actually increases the amount of goods that others may use for their benefit. Second, the spoilage limitation applies only to perishable goods. It does not apply to durable goods such as precious metals, and it does not limit the amount of property one may own. Therefore, when the emergence of money made it possible to sell excess land, i.e. land not needed to satisfy one's own wants, land on which crops might otherwise rot, it also legitimated the ownership of land and other resources beyond that needed for personal use. Thus arose the accumulation of capital and Locke's opposition to illegal limits on interest rates, important elements in Locke's economic thinking that I cannot discuss here, but which are explained in Karen Von's book cited above. One final note. It is clear that Locke believed that an economic system based on property rights did exist, and therefore could exist in a state of nature, long before the emergence of governments, whose only justification was to render those rights more secure. And this entails a high degree of social order in Locke's anarchistic state of nature that was impossible in the state of nature described by Thomas Hobbes, a perpetual war of every man against every man in which property rights and other civilizing institutions could not emerge. Locke's relatively optimistic view of the state of nature would later generate its own brand of anarchism. Given that society without government was not regarded as synonymous with social chaos in the Lockean tradition, and that government was deemed necessary only to remedy certain inconveniences in the state of nature in regard to the security of property rights already established, it became plausible to speculate on how those inconveniences might be dealt with satisfactorily in a competitive market system without a monopolistic government. What was unthinkable for Hobbes and other absolutists became thinkable in the treatment of John Locke. This has been Excursions into Libertarian Thought, a production of Libertarianism.org and the Cato Institute. To learn more about Libertarian philosophy and history, visit www.libertarianism.org.