Money, Banks and Finance in Economic Thought

Locke, the bank of england and the origin of modern money

Roche Claude, Catholic university of Lille - UCL

Bank , such a Monopoly need regulation ( Locke - 1692) If modern money is defined as an asset backed by a central bank, then its origin is clearly recognizable. It appears at the heart of the "financial revolution" which completely restructured the English monetary and financial system and created the Bank of England (1693-1697). But it is well known that the founder of liberalism, Locke was personally involved in this process. And the question arises of his contribution. Surprisingly, history of ideas is silent on this point, implying that Locke was outside this revolution : he would even be an archaic monetary theorist (Horsefield, Hekscher). But such a judgement is irrational. For this "revolution" was inconceivable without a major jump of thought which only a philosopher was capable. And this communication will show that Locke, against the thought of his contemporaries, succeeded in conceiving the key points. Namely • 1. The notion of financial system, its functions as well as its necessary regulation ( see our quotation) • 2. The principles of uniformity between credit and money, as well as those of "gold standard policy’’ i.e state’s commitment to its currency. He said "Mankind has made gold by general consent the common Pledges." [SC-P31] • But we will show that the very issue of his famous - and now so discussed - ‘theory of property’ was to justify such a financial policy, which we know was pushing to restructure property. Such will be our conclusion : at the same time as he laid the groundwork for modern political institutions, Locke laid those of their monetary and financial institutions. Then remain to understand the « deafening silence » on this subject. There is, of course, an ideological reason of it, that lies in the problematic of general interest which is inherent in any central bank. This point is so conflictual for liberalism that one chosed probably to ignore it at Locke’s (Kendall). Above all however there is an epistemological reason which refers to the status of economic knowledge. Remember that money is an essential tool of this knowledge. Hence, that such a tool could be established politically, is unacceptable to who believes in its scientific status. Such was the case of the principal historians, Schumpeter, Marx, Blaug : denaturate Locke’s thought was for them an epistemic necessity.

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Keywords: Locke, money , Bank of England, financial institutions, financial regulation,

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