John Locke: Money and Private Property

When Locke argued that labor “puts the difference of value on every thing,” 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 invoked a standard distinction in early economic thought, which goes back at least to Aristotle, between value in use and value in exchange. (See my discussion of that dichotomy, which generated the classical water-​diamond paradox, here.) 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 ten 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 that any individual can cultivate is quite limited.

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 or to 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 labour.” And he who applies his labor to land “does not lessen but increase[s] 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 Possession, but in the perishing of any thing uselessly in it.” One may therefore expand one’s stock of private property by 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.

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 his 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 a legal limits on interest rates—important elements in Locke’s economic thinking that I cannot discuss here but which are explained in Karen Vaughn’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.